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Steady operational performance

About the stock: Mishra Dhatu Nigam (Midhani) is a leading manufacturer of special steel, super alloys and titanium alloys catering to niche end-user segments like space, defence, etc.

* Within the overall steel market, Midhani’s area of focus is specialty steel

* Midhani’s product range includes superalloys, titanium and titanium alloys, special purpose steels and other special alloys

Q1FY23 Results: Midhani reported a steady operational performance for Q1FY23.

* For Q1FY23, Midhani’s consolidated operations posted a topline of | 115 crore, up 1% YoY. Consolidated EBITDA for the quarter was at | 33 crore, up 29% YoY

* Consolidated EBITDA margin for Q1FY23 was at 28.7% vs. 22.4% in Q1FY22

* Depreciation expense for the quarter was at | 12 crore, up 80% YoY and 2% QoQ while finance costs for the quarter were at | 5 crore, up 158% YoY

* Ensuing consolidated PAT for the quarter was at | 18 crore, down 5% YoY

What should investors do? Midhani has given a return of ~67% in the last three years (from ~| 112 in August 2019 to ~| 187 levels in August 2022)

* We maintain our HOLD rating on the stock

Target Price and Valuation: We value Midhani at | 200, 18x FY24E EPS.

Key triggers for future price performance:

* As on July 1, 2022, Midhani’s order book was at | 1359 crore compared to | 1317 crore as on April 1, 2022

* Over FY22-24E, we expect Midhani’s consolidated topline to grow at 18% CAGR while EBITDA and PAT are expected to register a CAGR of 9% and 8%, respectively

Alternate Stock Idea: Within our steel sector coverage we like Ratnamani Metals and Tubes (RMTL).

* RMTL is a niche player with superior capabilities in the industrial pipes and tubes segment

* BUY with a target price of | 2000

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