Maithan Alloys Ltd


(Donald Francis) #1

One of our members S Paul recommends having a look at Maithan Alloys recommended by HDFC Securities recently, Oct 26 @178. Stock has moved to 192 CMP.

Thanks Paul. A quick look tells me the main triggers are the expanded capacities going to come on stream in FY12 (almost 3x). Competition analysis becomes a must for this player in ferro alloys with -IMFA, Rohit Ferro, Balasore Alloys, Navbharat Ferro and Ferro AlloysCompany, before forming a outlook. (debt positions, capacities, captive mines & power, etc.) available at 5x.

MAL is engaged in the production of manganese alloys. It mainly produces Ferro Silicon and Silica Manganese. The companyhas started to see an improvement in its overall business over the past few quarters and FY11 is expected to be a good yearfor MALâs business. This is mainly due to the increased demand of alloys in the country. The raw material prices have alsobeen stable while the finished goods prices have risen, thereby enabling the company to enjoy higher margins. The volumesare expected to continue growing in FY11 as it did in FY10.

The company has an overall capacity of 64 MVA (divided into 49 MVA in Kalyaneshwari Plant and 15 MVA in Meghalayaplant). It also has a captive power plant of 15 MW in the Meghalaya plant. This helps the company reduce the cost of power asthe production of alloys consumes a lot of power. With the increase in the overall capacity (as Meghalaya plant started only ayear ago), the companyâs topline is expected to grow rapidly in the coming years. Above that, MAL is also planning to install anew plant through its subsidiary in Vizag, Andhra Pradesh with a capacity of 72 MVA by FY12. The plant would be a 100%export oriented unit and will cater to the needs of the rising demand from foreign countries.

The company had faced problems in FY09 due to inventory and forex losses. This was not repeated in FY10. In FY10, MALhad also provided for a claim of arrears of power from Damodar Valley Corp amounting to Rs 12 crs (amount not yet paid âsubjudice). This may not be repeated in FY11 and hence could add to the profits of the company in FY11. The company hasalso focused on shifting its exports from Europe to Asian countries, as the economy is Asia is more stable and that could helpthe company stabilize its business over the long run.

With further capacities in the pipeline, captive power plant and subsidiaries set to begin their operations soon, the outlook forMAL looks quite buoyant. Also the fact that the industry outlook in which the company operates in being quite positive, thedemand for MALâs products could see further increase and hence add to the revenues and profits of the company goingahead.

As compared to some of its peers, MAL does not own mines (no great disadvantage for MAL), has no power plant for sale ofpower externally (merchant power rates are volatile) and little presence in ferro chrome. The key risk to MAL like any othercommodity company is competition and fluctuation in product and raw material prices.

We feel that the company could do well in the quarters to come and with the additional Vizag plant set to start in FY12, thecompany could soon start reporting stronger numbers in the future quarters. Investors could buy the stock at CMP and add ondeclines to Rs.150-156 band for sequential targets of Rs.210 (4xFY11E EPS) and Rs.236 (4.5xFY11E EPS) in the next 2-3quarters.


(Donald Francis) #2

The Maithan Alloys HDFC Securities report of Oct 26.


(Lalit Dugar) #3

can we buy this company now?


(Abhimanyu) #4

Hi, I have recently been studying this company.

The company has 154.45 crores of contingent liabilities in the form of “Guarantee provided to bank in respect of term loan and ECB extended bythem to a subsidiary company”. Does any one have a view on this, and how is the overall corporate governance of the company?

Any other updates on this company, that could be helpful to get up to speed?


(Ayush Mittal) #5

Hi,

Anybody following this co closely??

I had bot some recently looking at the consistent good results and good balance sheet despite being in a poor sector.

The Q2 results too look good and stock looks undervalued to me.

I think, as the co is performing so well in a challenging environment and available at good valuations, one needs a deeper research on this one.

Views Invited

Ayush


(Dhwanil Desai) #6

Hi Ayush,

I had looked at the company cursorily a month agoand found it interesting considering their claims of being the largest player in manganese alloys, expanding capacity and very decent valuation. Latest half yearly balance sheet suggests that it is a debt free company available at close to 100 crores (net of investment+cash)i.e. 2 times forward earnings. When I read AR, I got a feel that management is hungry for growth and is aggressively pursuing the same.


#9

They are also in Wind Turbines. From AR 2011 - 12 “Operates a 3.75 MW wind turbine in Maharashtra and Rajasthan backed by a power purchaseagreement with the respective state electricity boards”


(N Sood) #10

I would consider it to be among top buys once steel starts moving. Not bad now either if you have money to buy and hold.


(Hardtoget) #11

Hi Ayush,

got couple of questions/thoughts in mind

there was talk on TED & here about re-rating of the sector around 2010 ( also the thread on facor alloys), but as you mentioned the sector is not that great- (couple of days back there was newspiecetelling about the crisis in the alloy industry in Andhra- due to power crisis)

do you see the re-rating happening, considering the industry in general at this point of time

Maithan had a 42 % spike in power cost-which depressed margins significantly-reason for lowerresults

with added capacity will come need for more POWER ( their captive generation is too small), even tho they will get adequate power from Damodar DVC- but going ahead the cost of power will still be high

manganesealloys are used mostly by the steel industry- any idea on the outlook of the steel industry ,With Maithan indirectly the bet will be on the steel industry

rgds


(Hardtoget) #12

Ayush,

a correction there,

their captive generation is 40% of what they buy from others, not small like mentioned before

but their captive is generating lesser that last year at higher than last years cost


(Ayush Mittal) #13

@hardtoget: I haven’t been able to do much work on the company but till now the nos, bs and valuations look very interesting.

Hope to spend more time on this one.


(Rits) #14

Hello Seniors,

What is your take on Maithan alloy at current cmp. Is it still a buy for long term. Pl advice.


(Rits) #15

Hello Seniors,

What is your take on Maithan alloy at current cmp. Is it still a buy for long term. Pl advice.


#16

Company has been showing promising results specially post merger of its subsidiary Anjanaya Alloys with self. Last qtr results were fab and likely to continue the same going forward.


(Dr. TarunDS) #17

any idea regarding the 17% fall today?
being a new investor i came across this situation for the first time seeing such a steep fall in a stock price in an hour or so.
would really appreciate thoughts of Senior VP’s on this regard.

Disc: bought some during the fall


#18

The company came out with excellent set of results with sales moving from 1850 crs to 2500 cr and net profit moving up by 130% still the stock was down 17% primarily due managements decision of not to disclose consolidated results on quarterly basis.


(Dr. TarunDS) #19

@atulastra thanks for the information.


#20

Hi All,

If any one plans to attend the AGM, kindly put forward the following questions for me:

  1. Why the company decided not to disclose the Consolidated numbers each quarter and how does it impact the institutional investors?

  2. Why the company does not have a dividend payout policy, the company has not talked about any expansion plans in the annual report. So, what they want to do with the cash in hand ? Paying 12% interest on debt and earning 6% taxable returns on investment is certainly not in best interest of investors.

3.Can we expect any bonus or stock split in near future?

Thanks a lot in advance.

Regards


(eyesice) #21

Has anyone been tracking the company seriously? What is the view of the overall Alloy sector in India? Who are its chief competitors?


(The Confused Consultant) #22

Hi
This is one of the stock I am still curious on and invested. I have covered
in details about its risk , business model and competitive advantage in
another thread.


Coming back to your questions, alloy sector still have over capacity and
bunch of trade off decisions required (on raw material, segmented products
etc).
In a sea of red lines Maithan went cracking about segmented need, Vizag
plant was build around fit for purpose production batches to create this
value add. With recent floods the number may be subdued, the absence of
quarterly consolidated numbers add more confusion.
Saying that COO is someone who is fitted with Rolls Royce engine when it
comes to business acumen (I like his trade off decisions…master stroke).
I was a buyer below 100, bought few around 250-260. But may not take active
positions further, rather will watch the Q2 story post floods, capacity
utilisation and power cost. If steel industry top spins it will be further
interesting to watch out!