Maithan Alloys

Maithan Alloys reported a strong financial year for FY19, with Revenue from Operations growing 6% to ₹1,988 crores. The company achieved an Operating EBITDA of ₹322 crores, maintaining a healthy EBITDA margin of 16%. Profit After Tax (PAT) stood at ₹255 crores, translating to a PAT margin of 12.8%. Management expressed confidence in sustaining long-term EBITDA margins between 15% and 17%, citing a 4% headroom over competitors' cash loss scenarios.

To capitalize on growing domestic steel demand, Maithan Alloys announced a Greenfield Ferro alloy manufacturing unit in West Bengal. This plant will have an estimated capacity of 1.2 lakh tonnes per annum, fungible between Manganese and Chrome alloys, with Manganese products primarily targeting the domestic market. The project is estimated to cost ₹275 crores and is expected to be completed within 24 months from today, with approximately 20% of the CAPEX planned for FY20. However, environmental clearances are still in process, with an anticipated 6-month delay.

The company primarily imports high-quality Manganese ore from Africa and Australia, with domestic purchases (mainly low-grade from MOIL) accounting for less than 10% of value. Management emphasized its cost efficiency, including optimizing raw material blends and maintaining low overheads. For Ferro Manganese and Silico Manganese, the variable cost breakdown is approximately 50% Manganese ore, 30% power, 15% Coke & Coal, and 5% others. Current power costs range from ₹4.5-5.0 per unit.

Maithan Alloys' revenues are equally split between domestic and exports, with exports primarily directed to Asian economies (excluding China). The company avoids the Chinese market due to its lack of transparency and historical export duties on alloys. Management anticipates domestic steel industry capacity utilization to remain above 80% over the next three years, with an additional 16 million tonnes of capacity and ₹75,000 crores in CAPEX, boosting demand for Ferro alloys.

The company boasts a strong net cash position with ₹667 crores in cash and liquid investments. Management projects this to grow to ₹1,000 crores by the time the new plant is operational, with ₹300 crores allocated for the Greenfield CAPEX, leaving ₹700 crores. While earning approximately 7% post-tax on surplus cash, the company intends to retain this cash for another 9-12 months to fund potential inorganic growth opportunities. A buyback would be considered if suitable growth avenues are not identified.

Over the last five years, Maithan Alloys has demonstrated significant growth, with Revenues, EBITDA, and PAT increasing at a CAGR of 16%, 45%, and 86% respectively. The company's operating ROCE has consistently remained above 50% in the last three years, reaching over 60% in FY19. This strong performance is attributed to prudent capital allocation and superlative operating efficiency, overcoming initial underperformance of the Visakhapatnam plant in its early years.