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Opportunities galore; execution set to pick-up…

About the stock: Mishra Dhatu Nigam (Midhani) is the manufacturer of High performance alloys, special steels and stainless steels, super alloys (nickel base, iron base and cobalt base), varieties of titanium alloys etc

• The Company has two state of the art manufacturing facilities - Hyderabad (Telangana) and Rohtak (Haryana)

• Consolidated revenue has grown by 6.9% CAGR in the last 3 years during the period FY20-23 while EBITDA have grown by 9.2% CAGR over the same period. PAT CAGR during the period FY20-23 have remained flattish. During FY23, company reported revenues of | 871.9 crore (+1.4% YoY) while EBITDA at | 257.5 crore (-1.8% YoY) with EBITDA margin at 29.5%. FY23 PAT was at | 156.3 crore (-11.5% YoY)

Key Investment Thesis:

• Strong capabilities in manufacturing & development of wide-range of strategic materials; Focus on product indigenisation: Midhani, the prime production partner for high value strategic material products in defence & space, has core competence to develop and manufacture wide range of these materials & superalloys for these sectors. With focus on indigenisation and strong capabilities backed by advanced & unique metallurgical facilities at Hyderabad & Rohtak, the company is well positioned to benefit substantially from increasing requirements of these strategic materials

• Strong orders prospects in defence, space provides Healthy visibility; Substantial opportunities from other segments too: The Company’s order backlog stood at | 1622 crore as of July 2023 end (~1.9x of FY23 revenues), which gives strong revenue growth visibility over the next 2 years given the short execution cycle for large part of this order book . Moreover, we believe that there is a healthy growth visibility in the longer term considering the orders pipeline in defence, space and other segments like energy, railways, civil aviation etc, led by certain requirement of company’s products (superalloys, titanium alloys etc) in major platforms in these segments

Rating and Target Price

• Midhani is set to benefit substantially from increasing capital outlay across its target segments – defence, space, railways, energy etc. With focus on improving execution, developing product portfolio and exports, we believe company’s operational and financial performance would improve considerably in the coming period. We estimate revenue and PAT to grow at ~20% and ~18% CAGR over FY23-25E

• We maintain our BUY rating on Midhani. We value the stock at | 465 per share (based on 40x FY25 EPS)

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