Mishra Dhatu Nigam IPO / Midhani IPO – What are the hidden factors?
Miniratna PSU IPOs like Midhani IPO news has been buzzing for the past several months and now they have announced the IPO dates. Mishra Dhatu Nigam IPO / Midhani IPO would open for subscription on 21st March, 2018. Mishra Dhatu Nigam Ltd is one of the leading manufacturers of special steels, Superalloys and only manufacturer of titanium alloys in India. Govt of India is going to divest 26% of its stake through this IPO. Mishra Dhatu Nigam generated revenue of Rs 678 Crores in FY2017. It earned around 15% margins in FY17. What are the positive factors in Mishra Dhatu Nigam Limited IPO? What are the hidden factors in Mishra Dhatu Nigam Ltd IPO? Should you invest in Midhani IPO when there are over Rs 15,000 Crore IPO’s opened for subscription in March, 2018?
About Mishra Dhatu Nigam Ltd (Midhani)
They are 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 defence, space and potheyr. company was established in the year 1973, with an aim of achieving self-reliance in the research, development and supply of critical alloys and products of national security and strategic importance. they have emerged as a ‘National Centre for Excellence’ in advanced metallurgical production of special metals and Superalloys in India.
They have the technological ability to manufacture a wide range of advanced metals and alloys under one roof. With the growth of their business and operations, they have achieved the status of a Mini Ratna, Category-I company in 2009. They are 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. 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, potheyr generation, nuclear, defence and other general engineering industries. their products are key ingredients for strategic sectors in India, which typically cannot be imported from other countries due to its national security related concerns.
Mishra Dhatu Nigam IPO Issue details
IPO opening date: 21-March-2018
IPO closure date: 23-March-2018
Face Value: Rs 10 per share
Issue price band: Rs 87 to Rs 90 per share.
Issue size: Approx. Rs 438 Crores on higher price band
IPO Lot size: 150 shares and 150 shares there-off (Tentative, would be updated once we get final RHP)
Minimum investment: Rs 14,850
Leading Managers: SBI Capital and Axis Capital
Listing: BSE / NSE
Objects of the Mishra Dhatu Nigam Limited IPO issue
Below are the objects of this IPO.
(i) To carry out the disinvestment of 46.83 Mn equity Shares by the Selling Shareholder constituting 25% of our Company’s pre-Offer paid up Equity Share capital; and
(ii) to achieve the benefits of listing the Equity Shares on the Stock Exchanges. Company will not receive any proceeds from the Offer and all proceeds shall go to the Selling Shareholder
Since Govt of India is the Promoter of the company, President of India is acting as Promoter through the Ministry of Defence.
Company Financials (reinstated)
1) The company generated revenue of Rs 678 Crores for the year ended Mar-15 and Rs 833 Crores for the year ended Mar-17. Revenues for 6 months ended Sep-2017 was Rs 220.6 Crores.
2) The company posted a profit of Rs 99.1 Crores for the year ended Mar-15 and profit of Rs 126.3 Crores for the year ended Mar-17. Profits for 6 months ended Sep-17 was Rs 27.3 Crores.
3) Its FY17 EPS is Rs 6.74 and 3 years average EPS is Rs 6.38. Its 6 months ended Sep-17 EPS is Rs 1.46.
What are the key strengths of Mishra Dhatu Nigam Limited?
Here are the key strengths of the company.
1) Most advanced and unique facilities.
2) Capability to manufacture wide range of advanced products
3) Strong long term customer relationships
4) Research and development based technology development
5) Highly Qualified and Experienced Management and Management Systems
What are the Strategies of Mishra Dhatu Nigam Ltd?
Here are the key strategies of the company.
1) Growth and modernisation
2) Increased focus on research and development
3) Strengthen their human capital
Reasons to invest in Mishra Dhatu Nigam IPO
1) Its revenue grown from Rs 678 Crores in FY15 to Rs 833 Crores in FY2017. However, its revenues for 6 months ended Sep-17 has fallen to Rs 220 Crores. Company says there is shut down of one of its main plant after 32 years for maintenance and it would re-open from Apr-18. It would post reduced revenues for FY2018 compared to previous years due to this impact.
2) Its margins showed improvement in FY17 (15.2%) compared to FY15 (14.6%) and for 6 months ended Sep-17, its margins dropped to 12.4% due to shut down of its main plant for maintenance. It would have impact in FY18 margins due to this.
3) Good opportunity to invest in leading Mini Rathna in India.
4) IPO is available at discounted price for retail investor. Retail investors would get Rs 3 discount on the share price.
Risk Factors / Reasons not to invest in a Mishra Dhatu Nigam IPO
1) They currently supply to strategic sectors. A decline or reprioritization on the focus on strategic sectors or change in policies relating to the strategic sectors in the future will have a material adverse impact on their business, financial condition, and results of operations, growth prospects and cash flows.
2) As a result of national securities concerns, certain information in relation to their business and operations is classified as ‘secret and confidential’ pursuant to which they have neither disclosed such information in this DRHP nor provided such information to the BRLMs and other intermediaries and advisors involved in the Offer.
3) Company is currently not in compliance with certain provisions of the SEBI Listing Regulations and/or Companies Act, as may be applicable in relation to terms of reference of the Audit Committee and the Nomination and Remuneration Committee.
4) Ongoing disclosure of information in relation to company after the listing of the Equity Shares on the Stock Exchanges may be limited and may not be in compliance with the SEBI Listing Regulations and other applicable laws.
5) They are exposed to the risk of increase in the price of their raw materials and dependence on suppliers for supply of the raw materials. Further, if they are unable to stheirce quality raw materials required for their business at competitive prices, their business, results of operations and profitability may be adversely affected.
6) Their business operation is based out of their single manufacturing unit in Telangana. The loss of, or shutdown of, their operations at their unit in Telangana will have a material adverse effect on their business, financial condition and results of operations.
7) Their manufacturing processes depend on critical alloy making equipments any interruption in their production capability may require us to make significant and unanticipated capital expenditures to effect repairs, which could have a negative effect on their profitability and cash flows.
8) The GoI has significant influence over their actions which may restrict their ability to manage their business. Any change in GoI policy could have a material adverse effect on their financial condition and results of operations.
9) The manufacturing processes for their products are complex and hazardous.
10) They design, manufacture products that incorporate advanced technologies. Many of their contracts contain performance obligations that require innovative design capabilities, are technologically complex. The introduction of new products and technologies involves risks and they may not realize the degree or timings of benefits initially anticipated.
11) There are outstanding legal and tax proceedings involving the Company. Any adverse decision in such proceedings may expose us to liabilities or penalties and may adversely affect their business, financial condition, results of operations and cash flows.
12) Other risk factors (Internal and external) can be viewed in the red hearing prospectus (RHP).
Recommendation / Investment strategy – Mishra Dhatu Nigam IPO / Midhani IPO
1) On the upper price band of Rs 90 and on restated FY17 EPS of Rs 6.74, P/E ratio works out to 13.3x. Even based on last 3 years restated EPS of Rs 6.38, P/E ratio works out to 14.1x. However, since revenues and margins are declined for 6 months ended Sep-17, one should assess even latest EPS of Rs 1.46 and if we annualized it, the P/E works out to be 30x. Means, company is asking higher price band of Rs 90 in the P/E ratio of 13x to 30x. There are no listed peers for comparison. If we consider 30x P/E in general, the IPO price is highly priced.
2) Company revenues and margins are showing good growth. Its revenue and margins for 6 months ended Sep-17 are mainly dropped due to maintenance of one of its main plant after 32 years which is still a BIG risk factor. Its issue price is over priced. However, considering other positive factors and Miniratna brand, high risk investors can invest in this IPO for medium to long term. Investors may or may not get listing gains. Alterantively investors can wait for market correction and invest in these shares if they are available at discounted prices.
Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.
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Mishra Dhatu Nigam IPO / Midhani IPO – What are the hidden factors