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    Maithan Alloys

    MAITHANALLGood
    Metals & Mining·22 May 2019
    Management Summary

    Maithan Alloys reported a strong FY19 performance with 6% revenue growth and robust EBITDA and PAT margins of 16% and 12.8% respectively. The company highlighted its strategic focus on cost efficiency, optimal product mix, and a strong balance sheet with ₹667 crores in cash. Management announced a significant Greenfield expansion of 1.2 lakh tonnes capacity for ₹275 crores, aiming to capitalize on the growing domestic steel demand, while also actively exploring inorganic growth opportunities.

    Highlights

    7
    • FY19 Revenue from Operations grew 6% to ₹1,988 crores.

    • FY19 Operating EBITDA stood at ₹322 crores, with margins at 16%.

    • FY19 Profit After Tax (PAT) was ₹255 crores, achieving 12.8% margins.

    • The company maintains a strong net cash position of ₹667 crores in cash and liquid investments.

    • A final dividend of ₹6 per equity share (60%) was recommended for FY19.

    • Current capacity is 2.4 lakh tonnes per annum, with FY19 production at 2.25 lakh tonnes (near full capacity).

    • A new Greenfield Ferro alloy manufacturing unit in West Bengal is planned with 1.2 lakh tonnes capacity, costing ₹275 crores, to be completed within 24 months.

    Key financials

    Single quarter

    06 metrics
    1. 01Revenue from Operations₹1,988 Cr+6%YoY
    2. 02Operating EBITDA₹322 Cr
    3. 03EBITDA Margin16%
    4. 04PAT₹255 Cr
    5. 05PAT Margin12.8%

    Guidance & targets

    10
    CategoryTargetPriority
    Margin
    Long-term EBITDA Margin
    15-17%
    High
    Capacity
    Greenfield Expansion Capacity
    1.2 lakh tonnes per annum
    High
    Capex
    Greenfield Expansion Cost
    ₹275 crores
    High
    Capex
    Greenfield CAPEX in FY20
    20%
    Medium
    Regulatory
    Environmental Clearance for Greenfield Plant
    6 months
    Medium
    Cash Management
    Retain Surplus Cash
    12 months
    Medium
    Market Outlook
    Steel Industry Capacity Utilization
    >80%
    High
    Market Outlook
    Steel Industry Capacity Increase
    16 million tonnes
    High
    Market Outlook
    Steel Industry CAPEX
    ₹75,000 crores
    High
    Profitability
    Bear Case EBITDA Margin
    12%
    Medium

    Risks & concerns

    7
    RiskSeverity

    Delay in Environmental Clearance for Greenfield Project

    Environmental clearance for the new West Bengal plant is not yet in place, with an estimated 6-month delay due to regulatory processes and elections.Management acknowledged

    medium

    Uncertainty in Inorganic Growth Opportunities

    While actively pursuing inorganic growth, the timing and size of potential acquisitions are uncertain, with some processes delayed by erstwhile promoters and banks.Management acknowledged

    medium

    Commodity Price Fluctuations

    Management acknowledges the inherent volatility of raw material prices (Manganese ore, coke, coal) and power costs, stating 5-10% fluctuations are possible.Management acknowledged

    medium

    Competition from Malaysia

    Malaysia ramped up capacity in 2016-17, causing price pressure, but management believes they are now producing at capacity and pose no additional threat, citing higher CAPEX costs in Malaysia.Management downplayed

    low

    Areas of Evasion(3)

    • Exact input-output ratio for Manganese ore to Ferro/Silico manganese (offered to provide indicative figures later)
    • Specific number of inorganic targets being evaluated
    • Bear case realizations per tonne

    Q&A highlights

    3

    “We totally appreciate that keeping this cash has a negative carry and we have been debt averse, but we would still want to carry this money for another 12 months because we would hate to lose out on opportunities which come our way. And because we have been able to do a good job of expanding and operating, so we have a request to our various stakeholders to just be patient and give us another 9 to 12 months and we are hoping to put that cash to use. If we are unable to put the cash to good use, then we would consider to return the money to the shareholders. But growth is our priority and if we can achieve better returns with the money, we would prefer that only.”

    Highlights management's dilemma between retaining cash for growth opportunities (especially inorganic) and returning it to shareholders, indicating a potential buyback if suitable growth avenues aren't found within 9-12 months.

    asked by Sarvesh Gupta, Maximal Capital

    2 min read6 chapters

    Detailed Narrative

    01

    FY19 Financial Performance & Profitability

    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.

    02

    Strategic Capacity Expansion & Greenfield Project

    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.

    03

    Raw Material Sourcing & Cost Efficiency

    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.

    04

    Market Dynamics & Export Strategy

    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.

    05

    Cash Management & Capital Allocation

    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.

    06

    Historical Performance & ROCE

    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.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.