Mishra Dhatu Nigam
A niche and non‐commodity play on Defence and Space sector
March 20, 2018 Mishra Dhatu Nigam Ltd. (MIDHANI) was incorporated in 1973 by Ministry of Defence, GOI with an aim to achieve self‐sufficiency in R&D and supply of critical Kamlesh Bagmar alloys and products of national security. It manufactures Speciality steel (Alloying [email protected] material of Nickel, chromium and cobalt), Super alloys (Individual alloys of Nickel and +91‐22‐66322237 cobalt) and Titanium alloys. These products are used in highly critical applications Amit Khimesra where the stress, temperature and corrosion are extremely high. Given better
[email protected] mechanical properties and high strength, these products mainly cater to defence, Note
+91‐22‐66322244 space and auto sector. India’s demand of Speciality steel/Superalloys/Titanium alloy
in India is estimated at ~80kt/2.5kt/1kt in 2016 and is expected to grow at rate of a IPO Rating Subscribe CAGR of 4%/9%/5% during 2016‐2021, owing to the investments planned in Price Band Rs87‐Rs90 aerospace and defence sectors and continued growth in auto sector.
Defence and space constituted 72%/22% of MIDHANI’s revenue in FY17. The current order book stands at Rs5.17bn which includes Rs2.8bn/Rs1.7bn from Defence/Space sectors to be executed over 12 month’s period. It produced 6150 tonnes in FY17, growing at a 5‐year CAGR of 12%. Led by double digit volume and expansion in
margins, Sales/PAT grew at CAGR of 8.7%/13% to Rs7.7bn/Rs1.3bn in FY17. Steady earnings growth and 30% dividend pay‐out helped company to maintain ROE in the IPO Fact Sheet range of 18‐20% consistently. Opening Date March 21, 2018 Closing Date March 23, 2018 Company has existing manufacturing facility at Hyderabad. It is planning to setup BRLMs‐ SBI Capital Markets, IDBI Capital Markets new plants at Rohtak & Nellore at a capex of Rs1bn to be spent over 2‐3 years. Issue Size Rs 4.24bn – Rs4.38bn Company will manufacture bulletproof Jackets, bulletproof vehicles and armour products, etc at Rohtak Plant. Plant is expected to be commissioned by the end of FY19. Nellore plant will manufacture Ammonium Para Tungsten (APT), Tungsten powder & Tungsten carbide plant at a capex of Rs0.8bn expected to be commissioned by FY20.
The GOI is offering 48.7mn shares (26% of equity) to raise Rs4.4bn at upper end of the band at Rs90, valuing the company at Rs17.5bn trading at a PER of 13.3x FY17. Given the strong outlook on Defence and Space sector, increasing product basket and high barriers to entry, OFS of MIDHANI provides good long‐term opportunity with attractive valuations. Key financials (Y/e March) FY14 FY15 FY16 FY17
Revenues (Rs m) 5,546 6,474 7,165 7,733 Growth (%) 0.1 16.7 10.7 7.9 EBITDA (Rs m) 1,081 1,281 1,511 1,853
PAT (Rs m) 825 992 1,194 1,263 APAT 842 992 1,194 1,263
EPS (Rs) 4.5 5.3 6.4 6.7
Profitability & Valuation FY14 FY15 FY16 FY17 Issue Details EBITDA margin (%) 19.5 19.8 21.1 24.0 Pre‐issue equity (m shares) 183.28 RoE (%) 18.9 18.4 19.3 17.9 Post‐issue equity (m shares)* 183.28 RoCE (%) 9.9 11.9 12.8 13.5 Post‐issue Market Cap (Rs bn)* 16.8bn EV/EBITDA (x) 15.0 12.9 9.9 8.1 * Calculation on higher price‐band P/E (x) 20.01 17.00 14.12 13.35
Source: Company Data; PL Research * All ratios have been calculated at the higher price band
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report Mishra Dhatu Nigam
Exhibit 1: Issue Details Company Mishra Dhatu Nigam Ltd. Mishra Dhatu Nigam Ltd. (MIDHANI) Profile Conferred the 'Mini‐Ratna (Category ‐1)' status from MoD, GoI Opens On : Tuesday, March 21, 2018 Offer Period Closes On : Thursday, March 23, 2018 Price Band Rs87/‐ to Rs90/‐ Retail & Employee Rs. 3/‐ per Equity Share Discount Bid Lot 150 Equity Shares & in multiple of thereafter Offer Size Offer for sale of 48,708,400 Equity Shares Issue Size (In Rs.) Rs4.38bn QIB : 50% of the Issue NIB : 15% of the Issue RETAIL : 35% of the Issue Mode of Payment ASBA Mandatory (No Cheques will be accepted) Lead Manager SBI Capital Markets, IDBI Capital Markets Registrar Alankit Assignments Limited Listing NSE and BSE
Source: Company Data, PL Research
March 20, 2018 2 Mishra Dhatu Nigam
Business Background
MIDHANI is the only producer in India to carry out vacuum based melting and refining through vacuum melting furnace such as vacuum induction melting, vacuum arc remelting, vacuum degassing/ vacuum oxygen decarburization, electro slag remelting and electron‐ beam melting.
Company is one of the few metallurgical plants of its kind in the world specialized in manufacturing wide range of Speciality steel, Superalloy and Titanium alloy products Conferred the 'Mini‐Ratna (Category ‐1)' mainly catering to aerospace, defence, atomics, space, energy and other industries status from MoD, GoI that require high precision. Its products are mainly used in high end engineering applications that require precision and high efficiency to withstand stress, temperature and corrosive atmosphere.
It manufactures speciality steel like martensitic steel, ultra‐high strength steel, austenitic steel and precipitation hardening steel. It manufactures three varieties of Superalloys – nickel base, iron base and cobalt base. It also manufactures varieties of titanium alloys. Most of the orders executed are in the nature of an import substitute and have the competence of developing and manufacturing customized alloys tailor‐made to suit the specific requirements of customers for their critical applications.
MIDHANI has manufacturing unit at Hyderabad and is in the process of setting up two new manufacturing facilities in Rohtak and Nellore. Company has in house R&D team with 14 people, accredited to National Accreditation Board for Testing and Calibration Laboratories.
MIDHANI’s current order book as of Exhibit 2: Key Management Personnel January 31, 2018 is Rs5.2bn Name Age Designation Dr. Dinesh Kumar Likhi 57 Chairman and Managing Director Sanjeev Singhal 52 Director (Finance) and Chief Financial Officer Sanjay Kumar Jha 53 Director (Production & Marketing) Indraganty Venkateswara Sarma 65 Independent Director Dr. Jyoti Mukhopadhyay 65 Independent Director Dr. Usha Ramachandra 56 Independent Director Surendra Sinh 61 Independent Director
Source: RHP, PL Research
March 20, 2018 3 Mishra Dhatu Nigam
Market Segmentation: Speciality steel, Superalloy and Titanium alloy products in india
Speciality steel accounts for 9% of global steel production. The speciality steel market is accounted by niche alloys such as Ni (0.2% of total market demand for speciality steel), speciality alloy (<2%), stainless steel – longs (4%), bearings (5%), stainless steel – flats (20%), and other alloy steel (69%). MIHDANI is focused on Ni and speciality alloys which is the most specialised and niche segment.
Exhibit 3: Heterogeneity in the Steel Sector, Tonnes (MT), %
Source: RHP, PL Research
Speciality Steel: Speciality steel products are high strength – low alloy steel grades that exhibit better mechanical properties in critical applications where the stress, temperature and corrosion are high. The carbon content in these grades ranges between 0.05% to 0.25% which helps to retain formability and weldability of the metal. The other key alloying elements are manganese, chromium, nickel, copper, niobium and molybdenum. These alloying elements are intended to alter the microstructure of carbon steel mainly to improve mechanical and metallurgical properties. These grades are generally priced high when compared to other conventional alloy grades as they are mainly preferred for special purpose applications.
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Exhibit 4: Major types of Speciality steel grades in India produced by MIDHANI
High value Speciality Steel
Alloy Steel Stainless Steel
Ultra High Other Percipitation Armour Grade Ferritic Martensitic Austenitic Strength Steel Products Hardening
Source: RHP, PL Research
Ultra High Strength Steel: Ultra High Strength Steel has yield strength between 1400 and 2400 MPa with high strength, excellent toughness and weldability without losing their malleable nature and it belongs to the ultra‐high strength materials category.
Armor Grade Steel Plates: Armor grade steel plates are used for bullet proof application to ensure the safety of individuals and/or contents transported from one place to another. It possesses excellent hardness and toughness along with high velocity projectile for vehicles in combat situation. The key end user application includes both defence vehicles and commercial vehicles. Generally the walls, doors, and the ceiling of these vehicles use armour grade steel to increase the ballistic resistance of the vehicle. The functional components of the vehicles such as engine components are made of superior quality to withstand load and excess weight.
Ferritic Stainless Steel: Ferritic steel contains high content of chromium, magnetic stainless steel with less than 0.12% carbon content. Ferritic steel have good resistance to corrosion along with excellent surface finish and stress corrosion cracking. This material finds application with thinner material and reduced weight with strength.
Martensitic Stainless Steel: Martensitic steel has carbon content of upto 0.75%, with chromium from 12.5% to 18%. Tempered martensite steel provides increased hardness and high toughness. Improved group of martensitic stainless steels are the super martensitic stainless steels that provide high strength with low‐temperature toughness having acceptable corrosion resistance.
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Austenitic Stainless Steel: Austenitic steel are non‐magnetic stainless steel grade with high level of chromium (upto 28%) and nickel (36%) along with low level of carbon. Austenitic steel grades have enhanced corrosion resistance with modified structure from ferritic to austenitic. These types of grades are categorized with 200, 300 series and are most commonly used type among other types of stainless steel.
Precipitation Hardening Steel: Precipitation hardening steel is classified as martensitic or semi austenitic steel grade that can be strengthened and hardened by heat treatment. This material is ideal for applications that requires high strength‐to‐weight ratio such as aerospace.
Exhibit 5: Application Areas for Speciality Steel Grades Titanium Alloy Key End User Segments Illustration of Application Areas Grades Aeronautical Aircraft engine parts Defence Aerospace exhaust system Crankshafts Ni Alloy Auto Components Gears Industrial Machinery Casings for motors Die casting Ceilings Defence Vehicles for Walls combat High Strength Doors Armour grades Armoured Commercial Ceilings Vehicles for Walls VIPs and SWAT vehicles Doors Aerospace Valve Parts Consumer Durables Multi‐Purpose tools Martensitic Stainless Medical Valve Parts Steel Oil & Gas Surgical Instruments Chemical Shears Tools & Machineries Aerospace Exhaust Systems Automotive exhaust Automotive systems Ferritic Stainless Oil & Gas Heat Exchangers Steel Chemical Plants Furnace combustion Power Plants chamber Processing Industries Chemical and oil refinery equipment Automotive Automotive trim Austenitic Stainless Food Processing Food & Beverage Steel Chemical Equipment Pharmaceutical Process Equipment Exhaust systems Aerospace Oil Patch Precipitation Oil & Gas Pump Shaft Hardening Steel (PH) Power Plants Oil Patch Chemical Plants Mechanical Seal Source: RHP, PL Research
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Superalloy Products: Superalloy products have high creep resistance at high temperature without any deformation along with excellent corrosion and oxidation resistance properties. They typically have an austenitic face‐centered cubic crystal structure with a base alloying element of nickel, cobalt, iron and nickel‐iron. Superalloys are high performance materials. They can be classified based on their alloying element into three types as shown below. MIDHANI produces all three types of Superalloys.
Exhibit 6: Superalloys product categories
Superalloys
Nickel Cobalt Iron Based Based based
Source: RHP, PL Research
Nickel Based Superalloy: Nickel based superalloy can withstand higher temperature for a longer period of time and hence finds application in high temperature (greater than 0.7 of the absolute melting temperature) applications along with excellent creep, fatigue and oxidation resistance. Nickel‐ based Superalloys are found in a wide range of applications; the most prominent use is in the manufacture of gas turbines for use in commercial and military aircraft, power generation and marine propulsion.
Iron Based Superalloy: Iron based superalloy is characterized to withstand high temperature with resistance to creep, oxidation, corrosion, and wear. The maximum of wear resistance is achieved by increasing of carbon content while oxidation resistance increases with addition of chromium content. Iron based alloys are predominantly used in Aerospace components such as bearings, fasteners, etc. Nickel‐Iron base superalloy are also commonly used alloy grade with nickel between 9‐45% and Iron ranging between 15‐60%.
Cobalt Based Superalloy: Cobalt based Superalloys have much lower high temperature strength but has superior hot corrosion and sulfidation resistance compared to nickel based Superalloys due to high chromium content and low diffusion of sulfur in the matrix. These alloy materials are used in combustion chambers of gas turbines (both industrial and aero engines).
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Exhibit 7: Application Areas for Superalloy Grades Illustration of Application Titanium Alloy Grades Key End User Segments Areas Jet engine Aeronautical components Air Frames Gas turbines Nickel Based Superalloy Combustors Power Plants Heat exchanger Oil & Gas tubing Chemical Plants Pump motor shaft Cryogenic tanks Process equipment Processing Industries Pre & Super heaters Chemical Plants Iron Based Superalloy Steam boilers Power Plants Piping application Industrial Machineries Industrial furnace Oil & Gas Valves & fittings Aerospace Electronic appliances Defence Navigating systems HV Transmission Electric and electronic lines Nickel‐iron alloy appliance Heaters Power Sectors Composite moulds Industrial Machineries Electric Furnace Consumer Durables Electronic housings Aerospace fasteners Aerospace High temp discs Nickel‐Chromium‐ Defence High temp springs Cobalt alloy Power Plants Turbine blades Automotive Exhaust re‐heaters Aerospace Electronic Defence Instruments Electric motor parts Iron – Cobalt alloy Consumer Durables Electronic appliances Soft Magnetic Alloy Industrial Machineries Sonar application Power Stations Ultrasonic equipment Source: RHP, PL Research
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Titanium Alloys: Titanium and titanium based alloys are non‐magnetic but have excellent corrosion resistance and light weight, have high tensile strength and toughness even at higher temperatures. Due to this, they find extensive application in aircraft and spacecrafts. Titanium alloys are used as biomedical implants since it is biocompatible. They are also used in other commercial applications such as cryogenic vessels, process equipment, etc.
Exhibit 8: Application Areas for Titanium Alloy Grades Key End User Titanium Alloy Grades Illustration of Application Areas Segments I Aerospace Defence Aircraft engine parts Marine Applications Aerospace exhaust system Power Plants Chemical desalination Pure Titanium and Titanium Alloy Process equipment Oil & Gas Based Marine components Chemical Plants Steam turbine blades Pharmaceutical Structural forgings Medical Cryogenic parts Processing Industry
Source: RHP, PL Research
Exhibit 9: MIDHANI’s revenue break‐up in FY17 Exhibit 10: Order‐book break‐up of Rs5.2bn as on Jan 31, 2018 Others Others 6% 13% Space 22%
Defence Space 55% 32% Defence 72%
Source: Company Data, PL Research Source: Company Data, PL Research
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Exhibit 11: Process flow chart of forged products
Source: Company Data, PL Research
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Manufacturing Facilities
Exhibit 12: Manufacturing Facilities Location Infrastructure Facilities Vacuum Arc Re‐Melting Furnace Vacuum Induction Melting Furnace Creep Testing Machines Heat Treatment Oil Quenching ElectroSlag Refining Furnace Vacuum Induction Refining Furnace Computerised Forge Press Precision 12‐HI‐Cold‐Strip Mill Primary Melting Furnaces Secondary Melting Furnace Hyderabad 1500 T Forge Press Hot Rolling & Precision Cold Rolling Bar and Wire Drawing Titanium Facility Tube Plant Vacuum Investment Casting Facility Core & Laminations Facility Finishing Lines & Support Facilities Quality Assurance & Control Lab On‐Line Quality Testing Facilities Upcoming plants
Armour project: MIDHANI is planning to set up a dedicated Armour Plant, Rohtak at Rohtak, Haryana. MIDHANI has ventured into different armour products like Bullet Resistant Jackets, Armouring of vehicles, Fibres / Fabrics for bullet resistant jackets etc. and all these are in different stages of implementation. These are likely to be completed during FY19.
Tungsten Powder Facility: MIDHANI and NMDC Limited have signed an Nellore MOU for Tungsten – Mining & Development of Processing Technology in October 2016. Company will be setting up Ammonium Para Tungsten (APT), Tungsten powder & Tungsten carbide plant at Nellore. Plant is expected to commission by FY20 Source: RHP, PL Research
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Exhibit 13: Armouring Products for Indian Defence Sector
Source: Company Data, PL Research
Exhibit 14: Products manufactured by MIDHANI
Source: Company Data, PL Research
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India Overview
Demand for the Speciality steel, Superalloy and titanium alloy is observed to be around 83,500 MT during 2016, speciality steel having the maximum contribution of around 96% followed by Superalloys with 3% demand contribution and titanium accounting for 1% during 2016. The market for the select products has grown at a steady growth of around 5.8% during 2011‐2016. The market for special metals and alloys is mainly driven by growth in aerospace and defence sectors that are expected to grow at a CAGR of around 8% during 2016‐2021. The categories requirement for special metals and alloys are expected to witness a cumulative demand growth of around 9% owing to major investments proposed in aerospace, defence and other industrial manufacturing sectors during 2016‐2021.
The key end user segments that consume the selected products are aerospace, defence, automotive and energy sector that includes oil and gas and petrochemical segments. Aerospace and defence had the maximum demand contribution with over 70% of the overall demand for high value speciality, Superalloys and titanium alloy products during 2016.
Exhibit 15: Key demand growth driving sectors
Aerospace
Defence
Others ‐ Auto Components, Oil & Gas, Chemical etc
Source: RHP, PL Research
Exhibit 16: Industry wise classification of select products
Source: RHP, PL Research
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Aerospace: The Indian aviation sector is likely to see investments of around USD 15 billion during 2016‐2020 of which USD 10bn is expected to come from the private sector. This investment includes addition of 300 business jets, 300 small aircraft and 250 helicopters to the existing fleet of Indian carriers, which in turn will fuel the demand for high value speciality steel, Superalloys and titanium alloys. India is rapidly building capabilities to emerge as a preferred destination for Indian maintenance, repair and overhaul (“MRO”) for aviation. India’s current MRO market size is estimated to be around USD 750 million. The market is expected to grow at 7% CAGR to reach over USD 1.5 billion by 2020. The Indian space program spearheaded by the ISRO is engaged in developments of its future space science missions like Chandrayaan‐2 and Aditya‐L1, amongst expanding many of its current projects.
Defence: India’s defence industry continues to strive to become a cutting edge, technology‐savvy, self‐sufficient, and world‐leading industry. According to data published by the Department of Industrial Policy and Planning, India’s defence industry had attracted Rs130bn in Foreign Direct Investment (“FDI”) in Fiscal 2015. The proposed 100% FDI with full technology transfer aims at addressing the need of capital investment and improved technology transfer. Ordnance factories (“OF”) and Defence Public Sector Undertakings (“DPSUs”) are engaged in the manufacturing of weapon systems for the armed forces. The private sector has been mainly involved in supplying raw material, semi‐finished products, and components to DPSUs, OF, army base workshops, air force base repair depots, and navy dockyards.
Some key features of the Indian defence industry include:
Fourth largest armed forces worldwide, in the 2017 Military Ranking by the Global Firepower list
One of the largest arms importer, accounting for 12.8% of global arms imports (between 2012 and 2016). Almost 70% of the defence requirements are imported
Ranks fifth in the global military budget (2016)
By 2027 the government plans to achieve approximately 70% indigenization in defence purchase, and the government has taken steps by budgeting Rs915bn for defence capital expenditure in Fiscal 2018, which is 25% of the nation’s overall defence budget. To take this to the next level, India expects to export defence equipment worth Rs128bn by 2019 to countries such as Vietnam, Mauritius and the UAE.
Between 2015 and 2020, the defence cumulative spending is estimated to be Rs22,931bn, of which new armaments spending is estimated to be Rs8,630bn. Procurement of new equipment from domestic sources is estimated to increase between 2015 and 2030 from 44% to 55%. By Fiscal 2025‐2030, the defence spending is estimated to hit Rs41,934bn.
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Exhibit 17: Share of Defence Services in Defence Budget during 2018 Ordinance ISRO Factories 3% DRDO 1% 5% Navy 14%
Army 55% Airforce 22%
Source: RHP, PL Research
Other Major End User Segments:
As per Automotive Mission Plan 2016‐2026 (“AMP”), Indian auto component industries could attain an impressive USD 200 billion in revenue by 2026, with exports of USD 80 billion. Contribution of auto component Industry in India’s GDP will account to as much as 5‐7% by 2026.
Oil & gas (includes petrochemical & refinery): contributes over 6% of the overall demand for Speciality steel and Superalloy products for process equipment, process pipe and piping systems, and boilers. As per the 12th Five Year Plan, oil production would increase to 844 MTOE by 2021‐22, with an investment of around USD 43.69 billion across the value chain that will help the demand for select products to grow at around 5% for oil and gas sector.
The Indian auto component industry is expected to achieve USD 200 billion in revenue by 2026, with exports of USD 80 billion. Contribution of auto component industry in India’s GDP will account to as much as 5% to 7% by 2026.
As India grows its stance as an industrial and knowledge economy, energy demand will grow to 1,509 MTOE in 2030, double the current demand. India will need to import nearly 1/3rd of its demand in 2030. India will also turn to renewable sources, and its generation could become a formalized part of the grid which will fuel the demand for Speciality steel, Superalloys and titanium alloy products.
The chemical industry is an integral component of the Indian economy and has the potential to grow at 9% per annum to reach USD 214 billion by 2019. The pulp and paper industry is growing at a healthy rate of around 6.8% during 2014‐16 and is expected to continue at the same rate fueling the demand for PH grade stainless steel products.
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High value speciality steel grades have the highest demand among the select product category with over 80% of the total demand in 2016. The cumulative demand for high value speciality steel, Superalloy and titanium expected to witness a growth of around 6.5% during 2016‐2021, owing to the proposed investment plans of end user segments.
Exhibit 18: Market size in India (in tonnes)
100,000 3,000 80,000 2,500 80,000 2,500 2,000 60,000 1,500 40,000 1,000 1,000 20,000 500 ‐ ‐ High Value Speciality Steel SuperAlloys Titanium Alloys
Source: RHP, PL Research
Speciality steel: Demand for select Speciality steel grades in India observed to be around 80,000 tonnes in 2016. According to Frost & Sullivan, high strength Nickel alloy accounted for a demand of around 50,000 tonnes as it is mainly preferred in automotive and auto component manufacturing sectors. The demand for high value speciality steel is expected to witness a positive growth rate of around 4.2% during 2016‐2021 mainly due to growth in auto and auto component manufacturing segments in India. The demand contribution of other speciality steel grades such as stainless steel and armor grade steel observed to be around 18,000 tonnes and 12,000 tonnes in 2016. Demand for armor grade steel expected to grow at a healthy rate of 4.5% on the back of new ‘Make in India’ policy and proposed investments in defence sector.
Exhibit 19: Estimated market size of High value speciality steel in India (in tonnes)
100,000 98,100 89,300 90,000 80,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 ‐ 2016 2019E 2021E
Source: RHP, PL Research
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Superalloy products: Supported by growth in key end user segments such as aerospace, defence and industrial component sectors, Frost & Sullivan observed the demand for Superalloy products in India to be around 2,500 tonnes. Nickel based alloy products accounted for the main demand during the year 2016. Demand for other Superalloys such as iron and cobalt based Superalloys is estimated at 250 tonnes and 225 tonnes respectively. The demand for Superalloys expected to grow at around 9% to reach 3,000 tonnes in 2016‐2021, owing to the planned investments in aerospace and defence sectors.
Exhibit 20: Estimated market size of Superalloys in India (in tonnes)
3500 3000 3000 2800 2500 2500
2000
1500
1000
500
0 2016 2019E 2021E
Source: RHP, PL Research
Titanium Alloy: In India, the demand for titanium is mainly dependent on overseas markets to source titanium sponge due to inadequate availability of high quality material. Frost & Sullivan observed that the demand for titanium alloy products was around 1,000 tonnes in 2016, mainly catering to aerospace and defence sectors in India. The key customers for titanium alloy grades are ISRO, HAL and DRDO who prefers to procure on project basis, only from authorized vendors. Major end‐users such as ISRO, HAL prefers to procure both from domestic and imported material (mainly from USA and Europe) based on both quality and availability of the material.
Exhibit 21: Estimated market size of Titanium Alloys in India (in tonnes)
1500 1300 1300 1150 1100 1000
900
700
500
300
100
‐100 2016 2019E 2021E
Source: RHP, PL Research
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Financial Snapshot
Exhibit 22: Revenue grew at a CAGR of 11.7% from FY14‐17 Exhibit 23: EBITDA and EBITDA Margins
9,000 2,000 30.0% 7,733 8,000 24.0% 7,165 25.0% 6,474 21.1% 7,000 1,500 19.5% 19.8% 6,000 5,546 20.0%
5,000 m) m)
1,000 15.0%
4,000 (Rs (Rs 3,000 10.0% 2,000 500 5.0%
1,000 1,081 1,281 1,511 1,853 ‐ ‐ 0.0% FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17
Source: RHP, PL Research Source: RHP, PL Research
Exhibit 24: Profit after Tax grew at a CAGR of 16% from FY14‐17 Exhibit 25: Return on Equity
19.5% 19.3% 1,400 1,263 1,194 1,200 992 19.0% 1,000 842 18.4% 18.5% 800 18.1% m) 17.9%
(Rs 600 18.0% 400 17.5% 200 ‐ 17.0% FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17
Source: RHP, PL Research Source: RHP, PL Research
Exhibit 26: Return on Capital Employed Exhibit 27: Gross Block Movement over the years
14.0% 13.5% 4,000 3,571 12.8% 3,500 13.0% 3,000 2,750 11.9% 2,435 2,423 12.0% 2,500 2,000 11.0% 1,500 9.9% 1,000 10.0% 500 9.0% ‐ FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17
Source: RHP, PL Research Source: RHP, PL Research
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Financial Snapshot Exhibit 28: Income Statement (Rs mn) Particulars (Rs in millions) FY14 FY15 FY16 FY17 H1FY18 Net Revenue 5,546 6,474 7,165 7,733 2,037 YoY Gr 0.1% 16.7% 10.7% 7.9% Expenses: Cost of materials consumed 1,961 2,120 2,449 1,938 442 as a % of Sales 35.4 32.7 34.2 25.1 21.7 Change in inventory/work‐in‐progress (96) 73 380 776 (304) Employee benefits expense 966 989 907 1,093 492 as a % of Sales 17.4 15.3 12.7 14.1 24.2 Power & Fuel 424 511 507 593 255 as a % of Sales 7.6 7.9 7.1 7.7 12.5 Sub‐Contract Charges 375 383 439 518 289 as a % of Sales 6.8 5.9 6.1 6.7 14.2 Consumption of stores, loose tools and spares 254 252 283 342 164 as a % of Sales 4.6 3.9 4.0 4.4 8.1 Other expenses 580 864 689 619 246 as a % of Sales 10.5 13.4 9.6 8.0 12.1 Total Expenditure 4,465 5,192 5,654 5,880 1,585 EBITDA 1,081 1,281 1,511 1,853 452 EBITDA Margin (%) 19.5% 19.8% 21.1% 24.0% 22.2% Other income 209 227 290 234 126 Depreciation and amortization expense 60 98 141 177 94 EBIT 1,230 1,410 1,660 1,910 485 Finance costs 42 70 42 47 15 PBT 1,188 1,340 1,618 1,863 470 Extraordinary item(net of tax expense ) (26) ‐ ‐ ‐ ‐ Total Tax 390 348 425 600 196 Tax Rate 32.1% 26.0% 26.2% 32.2% 41.9% Profit after Tax 825 992 1,194 1,263 273 EPS 4.4 5.3 6.4 6.7 1.5
Source: RHP, PL Research
Exhibit 29: Cash Flow (Rs mn) Particulars (Rs in millions) FY14 FY15 FY16 FY17 Net Cash Flow from Operating activities (20) 471 2,159 1,189 Net Cash Flow Used In Investing activities (180) (95) (1,067) (649) Net Cash Flow From Financing activities (474) (429) (903) (425) Net Cash Generated (673) (53) 190 116 Capex (349) (311) (300) (816) FCF (369) 159 1,859 373
Source: RHP, PL Research
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Exhibit 30: Balance Sheet (Rs mn) FY14 FY15 FY16 FY17 H1FY18 Shareholders’ funds Share capital 1,873 1,873 1,873 1,873 1,873 Reserves and Surplus 2,578 3,527 4,323 5,170 5,461 Total 4,451 5,401 6,197 7,043 7,334
Non‐current liabilities Long term borrowings 182 133 90 12 8 Deferred tax liabilities (Net) 64 127 226 204 244 Other long term liabilities ‐ 142 165 173 469 Long term provisions 5 6 7 8 8 Other non‐current liabilities 2,114 1,294 1,475 1,089 1,109 Total 2,365 1,703 1,963 1,487 1,837
Current liabilities Short term borrowings 279 415 0 126 647 Trade payables 969 952 530 660 904 Other financial liabilities ‐ 768 472 576 578 Other current liabilities 2,815 1,931 1,442 831 754 Short‐term provisions 2,624 462 605 287 243 6,687 4,527 3,049 2,480 3,127 Total 13,503 11,631 11,208 11,010 12,299 ASSETS Non‐current assets Fixed assets (i)Tangible assets 1,130 2,423 2,615 3,264 3,236 (ii) Intangible assets 25 19 15 9 7 (iii) Capital work in progress 1,179 94 67 62 542 Non‐current investments 21 21 21 21 21 Long‐term loans and advances 14 0 0 0 0 Deferred Tax Assets ‐ 534 637 293 390 Other non‐current assets 0 33 17 94 157 Total 2,369 3,126 3,371 3,744 4,354
Current assets Inventories 4,528 4,230 2,885 2,060 2,508 Trade receivables 2,436 2,201 2,091 2,885 2,223 Cash and bank balances 1,056 894 1,959 2,079 2,605 Short‐term loans and advances 3,040 ‐ ‐ ‐ ‐ Other Financial Assets ‐ 136 122 117 135 Other current assets 74 1,044 781 125 474 Total 11,134 8,505 7,837 7,266 7,945 Total 13,503 11,631 11,209 11,010 12,299
Source: RHP, PL Research
March 20, 2018 20 Mishra Dhatu Nigam
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BUY : Over 15% Outperformance to Sensex over 12‐months 50% 45.0% 43.4% Accumulate : Outperformance to Sensex over 12‐months 40% Reduce : Underperformance to Sensex over 12‐months 30% Sell : Over 15% underperformance to Sensex over 12‐months Coverage 20% Trading Buy : Over 10% absolute upside in 1‐month 11.6% Total 10% Trading Sell : Over 10% absolute decline in 1‐month of 0.0%
% Not Rated (NR) : No specific call on the stock 0% BUY Accumulate Reduce Sell Under Review (UR) : Rating likely to change shortly
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