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Mishra Dhatu Nigam

A niche and non‐commodity play on Defence and Space sector

March 20, 2018

IPO Note

Kamlesh Bagmar [email protected] +91‐22‐66322237

Amit Khimesra [email protected] +91‐22‐66322244

Rating Subscribe

Price Band Rs87‐Rs90

IPO Fact Sheet

Opening Date March 21, 2018

Closing Date March 23, 2018

BRLMs‐ SBI Capital Markets, IDBI Capital Markets

Issue Size Rs 4.24bn – Rs4.38bn

Issue Details Pre‐issue equity (m shares) 183.28

Post‐issue equity (m shares)* 183.28

Post‐issue Market Cap (Rs bn)* 16.8bn

* Calculation on higher price‐band

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

alloys and products of national security. It manufactures Speciality steel (Alloying

material of Nickel, chromium and cobalt), Super alloys (Individual alloys of Nickel and

cobalt) and Titanium alloys. These products are used in highly critical applications

where the stress, temperature and corrosion are extremely high. Given better

mechanical properties and high strength, these products mainly cater to defence,

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

CAGR of 4%/9%/5% during 2016‐2021, owing to the investments planned in

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

range of 18‐20% consistently.

Company has existing manufacturing facility at Hyderabad. It is planning to setup

new plants at Rohtak & Nellore at a capex of Rs1bn to be spent over 2‐3 years.

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

EBITDA margin (%) 19.5 19.8 21.1 24.0

RoE (%) 18.9 18.4 19.3 17.9

RoCE (%) 9.9 11.9 12.8 13.5

EV/EBITDA (x) 15.0 12.9 9.9 8.1

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

March 20, 2018 2

Mishra Dhatu Nigam

Exhibit 1: Issue Details

Company Mishra Dhatu Nigam Ltd.

Profile Mishra Dhatu Nigam Ltd. (MIDHANI) Conferred the 'Mini‐Ratna (Category ‐1)' status from MoD, GoI

Offer Period Opens On : Tuesday, March 21, 2018

Closes On : Thursday, March 23, 2018

Price Band Rs87/‐ to Rs90/‐

Retail & Employee Discount

Rs. 3/‐ per Equity Share

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 3

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

mainly catering to aerospace, defence, atomics, space, energy and other industries

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.

Exhibit 2: Key Management Personnel

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

Conferred the 'Mini‐Ratna (Category ‐1)'

status from MoD, GoI

MIDHANI’s current order book as of

January 31, 2018 is Rs5.2bn

March 20, 2018 4

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), %


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.

March 20, 2018 5

Mishra Dhatu Nigam

Exhibit 4: Major types of Speciality steel grades in India produced by MIDHANI


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.

High value Speciality Steel

Alloy Steel

Ultra High Strength Steel

Armour GradeOther

Products

Stainless Steel

Ferritic Martensitic AusteniticPercipitation Hardening

March 20, 2018 6

Mishra Dhatu Nigam

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 Grades

Key End User Segments Illustration of Application Areas

Ni Alloy

Aeronautical

Defence

Aircraft engine parts

Aerospace exhaust system

Auto Components

Industrial Machinery

Crankshafts

Gears

Casings for motors

Die casting

High Strength Armour grades

Defence Vehicles for combat

Ceilings

Walls

Doors

Armoured Commercial Vehicles for

VIPs and SWAT vehicles

Ceilings

Walls

Doors

Martensitic Stainless Steel

Aerospace Valve Parts

Consumer Durables

Medical

Oil & Gas

Chemical

Tools & Machineries

Multi‐Purpose tools

Valve Parts

Surgical Instruments

Shears

Ferritic Stainless Steel

Aerospace Exhaust Systems

Automotive

Oil & Gas

Chemical Plants

Power Plants

Processing Industries

Automotive exhaust systems

Heat Exchangers

Furnace combustion chamber

Chemical and oil refinery equipment

Austenitic Stainless Steel

Automotive

Food Processing

Chemical

Pharmaceutical

Automotive trim

Food & Beverage Equipment

Process Equipment

Precipitation Hardening Steel (PH)

Aerospace Exhaust systems

Oil Patch

Oil & Gas

Power Plants

Chemical Plants

Pump Shaft

Oil Patch

Mechanical Seal


March 20, 2018 7

Mishra Dhatu Nigam

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


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).

Superalloys

Nickel Based

Iron BasedCobalt based

March 20, 2018 8

Mishra Dhatu Nigam

Exhibit 7: Application Areas for Superalloy Grades

Titanium Alloy Grades Key End User Segments Illustration of Application

Areas

Nickel Based Superalloy

Aeronautical Jet engine

components

Air Frames

Power Plants

Oil & Gas

Chemical Plants

Gas turbines

Combustors

Heat exchanger tubing

Pump motor shaft

Cryogenic tanks

Iron Based Superalloy

Processing Industries

Chemical Plants

Power Plants

Industrial Machineries

Oil & Gas

Process equipment

Pre & Super heaters

Steam boilers

Piping application

Industrial furnace

Valves & fittings

Nickel‐iron alloy

Aerospace

Defence

Electronic appliances

Navigating systems

Electric and electronic appliance

Power Sectors


Consumer Durables

HV Transmission lines

Heaters

Composite moulds

Electric Furnace

Electronic housings

Nickel‐Chromium‐Cobalt alloy

Aerospace

Defence

Aerospace fasteners

High temp discs

High temp springs

Power Plants

Automotive

Turbine blades

Exhaust re‐heaters

Iron – Cobalt alloy Soft Magnetic Alloy

Aerospace

Defence Electronic

Instruments

Consumer Durables


Power Stations

Electric motor parts

Electronic appliances

Sonar application

Ultrasonic equipment


March 20, 2018 9

Mishra Dhatu Nigam

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

Titanium Alloy Grades Key End User Segments I

Illustration of Application Areas

Pure Titanium and Titanium Alloy Based

Aerospace

Aircraft engine parts

Aerospace exhaust system

Chemical desalination

Process equipment

Marine components

Steam turbine blades

Structural forgings

Cryogenic parts

Defence

Marine Applications

Power Plants

Oil & Gas

Chemical Plants

Pharmaceutical

Medical

Processing Industry


Exhibit 9: MIDHANI’s revenue break‐up in FY17

Defence72%

Space22%

Others6%


Exhibit 10: Order‐book break‐up of Rs5.2bn as on Jan 31, 2018

Defence55%

Space

32%

Others13%


March 20, 2018 10

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Exhibit 11: Process flow chart of forged products


March 20, 2018 11

Mishra Dhatu Nigam

Manufacturing Facilities

Exhibit 12: Manufacturing Facilities

Location Infrastructure Facilities

Hyderabad

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

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

Rohtak

Armour project: MIDHANI is planning to set up a dedicated Armour Plant, 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.

Nellore

Tungsten Powder Facility: MIDHANI and NMDC Limited have signed an 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


March 20, 2018 12

Mishra Dhatu Nigam

Exhibit 13: Armouring Products for Indian Defence Sector


Exhibit 14: Products manufactured by MIDHANI


March 20, 2018 13

Mishra Dhatu Nigam

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


Exhibit 16: Industry wise classification of select products


Aerospace

Defence

Others ‐ Auto Components, Oil & Gas, Chemical etc

March 20, 2018 14

Mishra Dhatu Nigam

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.

March 20, 2018 15

Mishra Dhatu Nigam

Exhibit 17: Share of Defence Services in Defence Budget during 2018

Army55%

Airforce22%

Navy14%

DRDO5%

ISRO3%

Ordinance

Factories1%


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.

March 20, 2018 16

Mishra Dhatu Nigam

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)

80,000

‐

20,000

40,000

60,000

80,000

100,000

High Value Speciality Steel

2,500

1,000

‐

500

1,000

1,500

2,000

2,500

3,000

SuperAlloys Titanium Alloys


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)

80,000

89,300 98,100

‐

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

2016 2019E 2021E


March 20, 2018 17

Mishra Dhatu Nigam

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)

2500

28003000

0

500

1000

1500

2000

2500

3000

3500

2016 2019E 2021E


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)

1000

1150

1300

‐100

100

300

500

700

900

1100

1300

1500

2016 2019E 2021E


March 20, 2018 18

Mishra Dhatu Nigam

Financial Snapshot

Exhibit 22: Revenue grew at a CAGR of 11.7% from FY14‐17

5,546

6,474 7,165

7,733

‐

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

FY14 FY15 FY16 FY17

(Rs m)


Exhibit 23: EBITDA and EBITDA Margins

1,081

1,281

1,511

1,853

19.5% 19.8%21.1%

24.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

‐

500

1,000

1,500

2,000

FY14 FY15 FY16 FY17

(Rs m)


Exhibit 24: Profit after Tax grew at a CAGR of 16% from FY14‐17

842

992

1,194 1,263

‐

200

400

600

800

1,000

1,200

1,400

FY14 FY15 FY16 FY17

(Rs m)


Exhibit 25: Return on Equity

18.1%18.4%

19.3%

17.9%

17.0%

17.5%

18.0%

18.5%

19.0%

19.5%

FY14 FY15 FY16 FY17


Exhibit 26: Return on Capital Employed

9.9%

11.9%

12.8%

13.5%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

FY14 FY15 FY16 FY17


Exhibit 27: Gross Block Movement over the years

2,435 2,423 2,750

3,571

‐

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

FY14 FY15 FY16 FY17


March 20, 2018 19

Mishra Dhatu Nigam

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


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


March 20, 2018 20

Mishra Dhatu Nigam

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


March 20, 2018 21

Mishra Dhatu Nigam

Prabhudas Lilladher Pvt. Ltd.

3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India

Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

Rating Distribution of Research Coverage PL’s Recommendation Nomenclature

45.0% 43.4%

11.6%

0.0%0%

10%

20%

30%

40%

50%

BUY Accumulate Reduce Sell

% of Total Coverage

BUY : Over 15% Outperformance to Sensex over 12‐months

Accumulate : Outperformance to Sensex over 12‐months

Reduce : Underperformance to Sensex over 12‐months

Sell : Over 15% underperformance to Sensex over 12‐months

Trading Buy : Over 10% absolute upside in 1‐month

Trading Sell : Over 10% absolute decline in 1‐month

Not Rated (NR) : No specific call on the stock

Under Review (UR) : Rating likely to change shortly

DISCLAIMER/DISCLOSURES

ANALYST CERTIFICATION

We/I, Mr. Kamlesh Bagmar (CA), Mr. Amit Khimesra (MBA), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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PL or its research analysts or its associates or his relatives do not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.

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ANALYST CERTIFICATION

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