Mishra Dhatu Nigam Limited IPO - Should you subcribe?

Incorporated in November 1973 and promoted by the President of India acting through MoD (Ministry of Defense), MIDHANI (Mishra Dhatu Nigam Ltd) is yet another Government PSU going to garner money from the public in March 2018. As a part of GoI's Rs. 72,000 Crore disinvestment plan for Fiscal 2018, after Bharat Dynamics Ltd and Hindustan Aeronautics Ltd, it's time for MIDHANI to go public. Here, noteworthy thing is that all three PSUs are consistent performers and heavily backed up by the Government support. Moreover, the shares price set by all three PSUs under IPOs are very reasonable with discount to retail investors and eligible employees.

In 2017, SBI Life,  General Insurance Corporation and  The New India Assurance Company Ltd heavily disappointed the investors. All three giants IPOs were big fiascos. The subscription figures were very poor. All the three IPOs hardly managed to subscribe, still RII & NII remained undersubscribed. On the listing day, it was a major set back as shares listed at discount and are still trading at discount. The companies are fundamentally strong but couldn't perform well. The shares are still good for long term perspective. On the other hand, PSUs like Cochin Shipyard Ltd and HUDCO have given reasonable returns to its investors so far.

MIDHANI OVERVIEW :

MIDHANI is one of the leading manufacturers of special steels, Superalloys and only manufacturer of titanium alloys in India. These are high value products which cater to niche end user segments such as defense, space and power.The company is one of the few metallurgical plants of its kind in the world, designed to manufacture a wide range of special metals and alloys using integrated and highly flexible manufacturing systems. The company manufactures unique combinations of metal and alloys. These special alloys have superior mechanical properties and better workability which are essential for special applications in aerospace, power generation, nuclear, defense and other general engineering industries. Its products are key ingredients for strategic sectors in India, which typically cannot be imported from other countries due to its national security related concerns. With the growth of its business and operations, the company has achieved the status of a Mini Ratna, Category-I company in 2009.

MIDHANI ISSUE DETAILS:

OBJECTS OF THE OFFER:

As it as 100% Offer For Sale by the selling shareholder President of India acting through MoD, the objects is plainly to carry out the disinvestment of 4,87,08400 Equity Shares (constituting 25% of company’s pre-Offer paid up Equity Share capital). Moreover, the company shall achieve the benefits of listing the Equity Shares on the Stock Exchanges. The Company will not receive any proceeds from the Offer and all proceeds shall go to the Selling Shareholder.

REVENUE AND PROFITABILITY:

The company has been a consistent performer. Its total revenues (on restated basis) grew at a CAGR of 9.77% from 573.75 Crore for Fiscal 2013 to 833.09 Crore for Fiscal 2017 and its PAT grew at a CAGR of 11.23% from 82.52 Crore for Fiscal 2013 to 126.31 Crore for Fiscal 2017 with average 15% PAT. The Company has earned a PAT of 27.30 Crore on a total revenue of 220.66 Crore for the six months period ended September 30, 2017 with 12% PAT.

PRICING OF THE SHARE:

At lower and upper price band (Rs. 87-Rs 90), PE ranges between 12.91 - 13.35 (EPS Rs. 6.74 as on March 31, 2017). Rs. 3 discount offered to Retail Investors and Eligible employees is ignored for PE calculation. NAV as on September 30, 2017 was Rs. 39.15, the selling shareholder has asked the price which is 2.22 - 2.30 times of its NAV. There are no comparable listed companies in India engaged in the same line of business as MIDHANI, hence comparison with industry peers is not applicable. However, prima facie, the price seems reasonable. 

DIVIDEND:

The company has been paying dividends consistently. In Fiscal 2017, 18.90% dividend was declared. As per CPSE Capital Restructuring Guidelines, all central public sector enterprises are required to pay a minimum annual dividend of 30 % of profit after tax or 5 % of the net-worth, whichever is higher, subject to the maximum dividend permitted under the extant legal provisions and the conditions mentioned in the aforesaid memorandum.

OTHER POINTS :

MIDHANI is a debt free company ( Debt Equity ratio 0.09 as on September 30, 2017) with 17.93% Return on Net worth. The company's order book stood at Rs. 620 Crore as on October 31, 2017 (Rs. 350 Crore orders from Defense Sector, Rs. 206 Crore from Space and Rs. 64 Crore from others). GoI's 'Make In India' will further push the growth of the company. The company has no core competitor so far.

MIDHANI's COMPETITIVE STRENGHTS

Most advanced and unique facilities, capability to manufacture wide range of advanced products, strong long term customer relationship, research and development based technology development, experienced management team.

CONCLUSION:

PSUs operate under political influence. Any change in Government may change the fate of the company. Such PSUs highly depend of a very few customers. However, positives are outnumbering negatives. The company is fundamentally strong and not to forget the share pricing is cheaper.

Thanks you for reading...Jai Hind

CA Prashant Seta

(Note : I write reviews based on my knowledge and understanding. The reader of this article should do his/her own research before applying)

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