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25%+ YoY revenue growth in H2FY22

Mishra Dhatu Nigam (Midhani) management guided for 20%+ top-line growth in FY22E with possible order inflow of > Rs10bn. The commissioning of the wide plate mill opens up new revenue opportunity for Midhani. Management expects that as ~Rs6bn of CWIP gets commercially commissioned, FY24E revenue can potentially reach Rs20bn+. Commissioning of the wide plate mill will lead to buildup of inventory over H2FY22. There are strong tailwinds in defence and aerospace ordering which will continue to tilt execution towards the same. We expect revenue, EBITDA and PAT CAGR of ~20% over FY21-23E. Maintain BUY.

* Commissioning of wide plate mill expected in Q4FY22. Wide plate mill with a capacity of 30,000te should see commercial operations start from Q4FY22. Initially, the mill will target Indian Railways to supply to LSB coaches and stainless steel to certain customers. As volume placement to strategic customers (DRDO and Defence PSUs) starts picking up, margin trajectory will also improve. More importantly, the commissioning of wide plate mill can meaningfully reduce subcontracting expense. Management expects 60-70% capacity utilisation of the plate mill in FY23E and expects ~Rs1bn of revenues in FY22E. Also, post commissioning of the plate mill, management plans to keep higher inventory as they finalise on the product and customer profile. The plate mill has been a customer funded facility, and of total capex of Rs5bn, Midhani will eventually invest ~Rs1bn.

* Orderbook breakdown. Of the Rs13.8bn orderbook, Rs8.63bn is from space and Rs3bn is from defence. Management expects ~Rs10bn of order inflow for FY22E which includes Rs1.5-2bn of orderflows for the wide plate mill, armour facility in Rohtak etc. Management expects significant order inflow from defence sector going forward specially linked to missiles. It is also optimistic on Titanium plates order. Also, there is significant effort being put in by ISRO to encourage private sector participation in space launches which can potentially expand the market and help Midhani.

* Significant increase in other expenses. Power and fuel expenses have increased due to increased LPG prices. The trend is expected to continue into Q3FY22. There has been some saving on account of solar power plant commissioned by Midhani in FY21. Also, catering to nuclear reactor orders, Midhani has incurred meaningful sub-contracting expenses. With commissioning of the wide plate mill, the same is expected to come down meaningfully.

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