Mishra Dhatu Nigam IPO review (May apply)

Mishra Dhatu Nigam Ltd. (Popularly known as MIDHANI) is specialty metal PSU and 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 power. The company was established with an aim of achieving self-reliance in the research, development and supply of critical alloys and products of national security and strategic importance. It has emerged as a 'National Centre for Excellence' in advanced metallurgical production of special metals and Superalloys in India. It enjoys status of a Mini Ratna, Category-I company.

MIDHANI 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. It 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, defence and other general engineering industries. Company has the competence of developing and manufacturing customised alloys tailor-made to suit the specific requirements of customers for their critical applications. Presently, it operates from the manufacturing facility in Hyderabad and is in the process of setting up two new manufacturing facilities in Rohtak and Nellore. MIDHANI's R & D facility is accredited to National Accreditation Board for Testing and Calibration Laboratories.

For disinvestment target and listing benefits, MIDHANI is coming out with a maiden IPO of 48708400 equity shares of Rs. 10 each via book building process with a price band of Rs. 87-Rs. 90 to mobilize Rs. 423.76 to Rs. 438.38 crore (based on lower and upper price bands). Issue opens for subscription on 21.03.18 and will close on 23.03.18. Minimum application BRLMs to this offer are SBI Capital Markets Ltd. and IDBI Capital Markets & Securities Ltd. Alankit Assignments Ltd. is the registrar to the issue. Issue constitutes 26% of the post issue paid up capital of the company. Its entire equity is issued at par. Post issue, it's paid up capital remains same at Rs. 187.34 crore as entire issue is by way of Offer for Sale (OFS). Average cost of acquisition of shares by the promoters is Rs. 10 per share.

On performance front, for last three fiscals, MIDHANI has posted turnover/net profits of Rs.678.39 cr. / Rs. 103.63 cr. (FY15), Rs. 790.45 cr. / Rs. 119.37 cr. (FY16) and Rs. 833.09 cr. / Rs. 126.31 cr. (FY17). For first half of the current fiscal, it has earned net profit of Rs. 27.30 cr. on a turnover of Rs. 220.66 cr. First half decline in top and bottom line is due to shut down of its main plant for maintenance after a gap of around 32 years and hence it might suffer a setback. However, company is expected to recover once it goes on stream once again by April 2018. For last three fiscals, it has posted an average EPS of Rs. 6.42 and an average RoNW of 18.58%. Issue is priced at a P/BV of around 2.3 based on its NAV of Rs. 39.15 as on 30.09.17. Although management has clarified for decline in top and bottom lines, if we annualize latest earnings and attribute it on post issue equity then asking price works out at a P/E of around 30, but if we consider FY17 earnings, then P/E comes to around 13.4 which augurs well. Company enjoys virtual monopoly in its field. It has no listed peers to compare with. It enjoys three decade plus relationships with its major customers. For last three fiscals it has posted CAGR of 11.1% in top line and 10.4% in bottom line.

On BRLM's front, two merchant bankers associated with the offer have handled 19 public offers in the past three years, out of which 6 offers closed below the offer price on listing date.