Execution set to pick-up…
About the stock: Mishra Dhatu Nigam (Midhani) is one of the key manufacturers of critical metals such as special steels, super alloys (nickel base, iron base and cobalt base), titanium alloys etc. The company primarily cater to the requirements of sectors like defence, space and energy
• Company has two state of the art manufacturing facilities – Hyderabad (Telangana) and Rohtak (Haryana)
• Company’s order backlog stood at ₹ 1820 crore as of Sept 2024 end, of which 70-80% is contributed by defence segment, 10-15% by space segment and balance from exports and others
Investment Rationale:
• Strong focus on increasing capacities & capabilities for wide-range of strategic materials; Execution expected to pick-up going forward: After a muted H1FY25, execution is expected to pick-up substantially going ahead. Management also maintained its guidance of 20%+ revenue growth for FY25E, which implies ~30% YoY growth in H2FY25E (vs 2.5% in H1FY25). With state-of-the-art manufacturing facilities, Midhani has strong capabilities in terms of developing & producing a diverse range of special metals and alloys (like titanium alloys, steel alloys, super alloys based on nickel, iron & cobalt etc) for sectors like defence, space & energy. Moreover, company continues to focus on capacity expansions, new product developments and broadening its overall scope of opportunities
• Orders inflow prospects remain robust: The Company’s order backlog stood at ₹ 1820 crore as of Sept 2024 end (~1.7x of TTM revenues), which gives healthy revenue growth visibility over the next 2 years given the short execution cycle for large part of this order book. Moreover, orders inflow prospects remain robust for company’s products considering the strong pipeline in defence, space and other segments (like energy, railways, civil aviation etc). Defence remains the key sector for company’s future orders considering the significant capex underway for various platforms (across air force, navy and army) like aircrafts, engines, missiles, tanks. Company guides for healthy order inflows of ~₹ 1600 crore in FY25E (~₹ 1000 crore worth of orders received in YTDFY25). We believe that company’s operational performance is expected to improve substantially in the coming periods led by improvement in supply chain and inventory management
Rating and Target Price
• Midhani is expected to benefit substantially from further pick-up in execution, robust order prospects, new product developments. During the period FY24-26E, we estimate revenue CAGR at ~22% while EBITDA & PAT CAGR at ~32% & ~43% respectively as the margins are expected to improve in the coming periods
• We maintain Buy on Midhani with a revised TP of ₹ 430 (based on 30x P/E on FY27E)
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