An employee stands beside a pallet of titanium dioxide pigment sacks on the production line. (Photographer: Jasper Juinen/Bloomberg)

Mishra Dhatu Nigam’s IPO: Here’s All You Need To Know

Mishra Dhatu Nigam Ltd.’s initial public offering, which opened today, is the third by a state-run company this month allowing the government to pare its stake.

The government will sell 4.87 crore shares, or 26 percent stake, in the speciality steelmaker at Rs 87-90 apiece to raise up to Rs 438 crore.

Mishra Dhatu Nigam’s IPO: Here’s All You Need To Know

Business

Midhani is the leading manufacturer of special steels and the only maker of titanium alloys in India. These are used by aerospace, power generation, nuclear, defence and other general engineering industries. The company caters to products that constitute less than 1 percent of the global steel market.

Mishra Dhatu Nigam’s IPO: Here’s All You Need To Know

The mini-ratna with one facility in Hyderabad is in the process of setting up two new plants in Rohtak and Nellore.

The company’s order book as of Jan. 31 was Rs 517 crore, about 64 percent of its revenue in the year ended March 2017. The majority of its orders come from the defence and space industry.

Mishra Dhatu Nigam’s IPO: Here’s All You Need To Know

And defence contributes the majority of its revenue.

Mishra Dhatu Nigam’s IPO: Here’s All You Need To Know

Financial Highlights

Its net worth as of Sept. 30 was close to Rs 733 crore, translating to a book value of Rs 39 per share. Midhani had had more than Rs 260 crore in cash as of Sept. 30.

Mishra Dhatu Nigam’s IPO: Here’s All You Need To Know

Midhani’s revenue rose at an annualised rate of 20 percent in five years through March 2017, while net profit grew at 16 percent. Revenue and net profit stood at Rs 208 crore and Rs 27 crore, respectively, for the first half.

Mishra Dhatu Nigam’s IPO: Here’s All You Need To Know

Earnings before interest, tax and depreciation and amortisation grew at a CAGR of 24 percent, while EBITDA margin expanded by more than 140 basis points in the last five years to 22.9 percent. Ebitda and Ebitda margin stood at Rs 45 crore and 21.7 percent in the first half.

The company’s only manufacturing facility is temporarily shut for maintenance, impacting its financials in the first half.

Midhani has low total debt of Rs 66 crore and has paid dividend consistently in the last five financial years.

The company’s return ratios on an annualised basis for 2017-18 are lower compared to the last year.

Mishra Dhatu Nigam’s IPO: Here’s All You Need To Know

Valuations

Annualised earnings per share for the year ending March stands at Rs 2.9. At the upper end of the price band, its price-to-earnings ratio is 30.9 times, according to BloombergQuint’s calculations.

Mishra Dhatu Nigam’s IPO: Here’s All You Need To Know

What Brokerages Say

Mishra Dhatu Nigam’s IPO: Here’s All You Need To Know

Angel Broking

  • The PE multiple is high considering Midhani’s two-year annualised growth in revenue and profit.
  • It has an undersized order book and revenue outlook, coupled with lower return ratios.
  • Recommend ‘Neutral’.

Centrum Wealth

  • Government’s focus on aerospace, defence and other industrial sectors could provide future growth opportunities.
  • Has a dominant position.
  • Recommends ‘Subscribe’ with a long-term perspective.

Prabhudas Lilladher

  • The company could gain from a strong outlook on defence and space sector, increasing product basket and high barriers to entry.
  • Offer for sale of Midhani provides a long‐term opportunity with attractive valuations.