Healthy order book position….
Mishra Dhatu Nigam (Midhani) reported a subdued set of Q1FY21 numbers. Total operating income for the quarter was at | 113.5 crore (down 14% YoY), while EBITDA was at | 5.8 crore (down 84% YoY). EBITDA margin for Q1FY21 was at 5.1% compared to 27.4% in Q1FY20. The company reported a loss at the PAT level of | 90 lakh for Q1FY21 compared to PAT of | 21.9 crore in Q1FY20. Due to Covid-19 related shutdowns, the operations had to be scaled down for a considerable period in Q1FY21. Though operations resumed during the latter part of the quarter with limited availability of workforce and disrupted supply chain, the restriction imposed affected the company’s production, turnover and profit during Q1FY21. However, since the end of May 2020, Midhani’s operations have normalised. Going forward, backed by a healthy order book, we expect the company's performance to improve in upcoming quarters. Within the defence segment, government’s initiative of indigenisation of imported spares will promote local sourcing and encourage import substitution. This step will benefit the company, as it would encourage it to manufacture products locally, which were earlier imported thereby providing scope for developing new advanced product.
FY21 order intake likely to be ~| 700-750 crore……..
During FY21, the management expects order intake to the tune of ~| 700- 750 crore. In the current fiscal year, majority of order intake would be from the defence segment. Of the cumulative order intake of ~ | 700-750 crore in FY21, ~70% is likely from the defence segment (including the aerospace). During FY20, Midhani booked orders (order intake) to the tune of | 786 crore. Of the orders booked during FY20, ~| 506 crore was from the space segment, | 229 crore was from the defence segment, | 28 crore was from the energy segment and balance | 23 crore was from the others segment.
Current order book ~2.4x FY20 of topline……
As on July 1, 2020, Midhani’s latest cumulative order book was at | 1732 crore, up sequentially from | 1687 crore as on April 1, 2020. Of the total outstanding order book, ~60-65% is from the space segment, ~30% from the defence segment while balance 5% is from the other segment. For FY21E, contribution of defence segment to the overall topline is expected to be ~55-60% while that of space segment is expected to be ~35-40%.
Valuation & Outlook
Midhani’s Q1FY21 performance was impacted by Covid-19 related concerns. However, backed by a strong order book position (| 1732 crore as on July 1, 2020), we expect Midhani to report a healthy performance, going forward. We value the stock at 22x FY22E EPS and arrive at a target price of | 260. We assign a BUY recommendation to the stock
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