Mishra Dhatu Nigam Ltd (NSE: MIDHANI) Ltd, established in 1973 under the Ministry of Defense as a GoI enterprise. The company is one of the leading manufacturers of special steels, superalloys and the only manufacturer of titanium alloys in India. The company produces special steels (martensitic steel, ultra-high strength, austenitic steel and precipitation hardened steel), three types of superalloys (nickel-based, iron-based and cobalt-based) and titanium alloys.
The company provides high value specialized products for end user segments like Defence, Space, Nuclear & Aerospace etc. The company has strategically invested in a joint venture with M/s. Utkarsha Aluminum Dhatu Nigam Limited with NALCO for supporting its aluminum based alloy business in Nellore, Andhra Pradesh which is moving in a positive direction with respect to government approvals.
Currently, more than seventy percent of MIDHANI’s products (by value) serve strategic customers, viz. Ordnance Factory Board (OFB), Defense Research & Development Organization (DRDO), Indian Space Research Organization (ISRO), Hindustan Aeronautics Ltd. (HAL) and Department of Atomic Energy (DAE) etc. In addition, MIDHANI also supplies special alloys and products to the commercial sector including Larsen & Toubro, BHEL, Titanium equipment etc.
The company has its own metallurgical laboratories that provide the tests required for the products. As of March 31, 2022, the company has ~770 employees. The global alloy steel market size is expected to reach USD 1,51,810 million by 2026 from USD 1,38,830 million in 2020.
Utkarsha Aluminum Dhatu Nigam Ltd is a 50:50 joint venture backed by MIDHANI and National Aluminum Company Ltd. to set up a 60,000 tonnes per annum high-end aluminum alloy plant in Nellore district of Andhra Pradesh.
MIDHANI has been consistent in winning contracts from Defence, Space, Aerospace, Power & Thermal, Electronics, Telecom, Engineering and other sectors. MIDHANI’s open order position as of date is around Rs 1,501 crore, of which defense (including PSU sales) is 55%, space is 35% and rest is others.
In addition, the company has signed a memorandum of understanding with the Indian Airforce for the development and indigenization of various metal powders such as titanium alloys, aluminum alloys and special steel for additive manufacturing process for manufacturing aerospace items. The company could soon receive an order for bulletproof vests.
The company’s wide mill has started production at full capacity with encouraging prospects. The company sees export opportunities in nickel-based superalloy plates and is developing nickel-based plates for desulfurization units for power plants. Export turnover for FY22 was Rs 87 crore, up 348 percent year-on-year. Apart from this, an armor plant at the Rohtak plant has been commissioned and the company expects to post revenues of Rs 500 crore from this plant.
MIDHANI has built a market position in the production of highly alloyed alloys with operational efficiency; the company has a good track record in signing and executing deals. Its wide plate mill and Rohtak plant have started production and both the wide plate mill and the Rohtak plant could show a steady state of Rs 500 crore each over time. Significant sales growth and a stable operating margin of 28-30% ensure a healthy increase in cash and liquidity. Despite the high inventory, it manages its working capital well.
Its strong financial profile with healthy liquidity, negligible debt and an attractive return ratio, on the back of good revenue visibility, makes the stock attractive. However, margin pressure due to commodity price volatility and currency volatility (forex) and heavy working capital requirements are some areas of concern to watch.
MIDHANI reported inline numbers led by higher scrap utilization; revenue fell 3.7% year-on-year to Rs 181 crore, while EBITDA rose 13% year-on-year despite high energy and raw material costs. EBITDA margin reached 32.4% in Q2FY23 vs. 27.6% in Q2FY22 Order book grew to Rs 1,501 crore and H1FY23 Value of Production (VoP) grew 41.8% YoY to Rs 480 crore. The company launched six new products at DefExpo-22. An 8t vacuum induction melting furnace for the production of armor plates was also fully commissioned at Rohtak (in Haryana).
MIDHANI’s order book stood at Rs 1501 crore as on 30 September 2022 as against Rs 1360 crore as on 30 June 2022 and Rs 1370 crore as on 30 September 2021. The order book consists of 35% from SpaceDefence, 55% from the Company and 10% from other projects related to energy and export. The company is also working on projects related to axles, wheels for Indian Railway, LHB orders of Rs 4-5 crore are in process and the company is expecting more orders or works of Rs 15-20 crore.
MIDHANI plans to launch several new projects and aims to expand geographically and operate from multiple locations. MIDHANI also intends to cater to industries such as oil and gas, mining, power and railways. The company has also signed a memorandum of understanding with the Indian Air Force for the development and indigenization of various metal powders such as titanium alloys, aluminum alloys and special steel for additive manufacturing process for manufacturing aerospace items. The bulletproof vest inquiry is likely to turn into an influx of orders in the near future.
Given the company’s strong financial profile, led by healthy levels of profitability and revenue ratios and a comfortable capital structure, we have a positive view on the stock.