Got super excited after listening to one of the fund manager on Maithan and was forcefully tempted to go through the numbers. Here are my two cents.
Operating at near 100% capacity and with no new greenfield or acquisition announed, the uptick in production is not visible at least over next 12 to 18 months. New greenfield capacity will take at least 2 years to come on stream and any new acquisition will take at least 12 to 18 months before the closure happen and consolidated numbers start yielding higher output. Hence the earning uptick is restricted over next 18 months and will be hinging purely on ferrous alloys price movement.THIS MAKES IT PRETTY RISKY BET.
Valuation wise,the company did 124 crore pat in 1HFY18 and assuming similar runrate, the FY18 should give not more than 240 crore pat (unless ferrous alloys price movement go up more aggressively). At 240 crore, the valuation is based on current market capital of Rs 1950 crore translate into a little over 8.5 times. Given the pat uptick is significantly limited for FY19, the valuation looks even more stretch.
The company is generating considerable cash flows over last three years and still not paying higher dividends, nor are they investing in growth, except that the same has been utilized for paying off debt which is still at Rs 76 crore in absolute terms (comfort is that D/E is at 0.12 times - FY17).
During the year FY17, the company purchased Rs 545 crore worth of investments and then sold Rs 415 crore worth of investments, made some Rs 15 to 16 crore profit on such sales and also received Rs 115 crore dividend (cost of investment for FY17 was net of dividend income). Is this the core business for the company. For this size of company, Rs 545 crore of investments. R U SERIOUS. WHY AUDITOR HAS NOT RAISED A FLAG FOR THIS.
Ability of the management to keep employee cost at barely 1.5% of sales is while on one side is commendable, it also raises doubts as how the same is possible in a industry which is highly fragmented. Maithan claims to be the largest player but account for barely 10% of the market in terms of capacity.
There are was no purchase and sale of investments in FY16. During FY17, the company purchased Rs 545 cr of investments on which they earn Rs 115 crore of dividend which translates into 21% dividend yield. WHY WILL ANY COMPANY EVEN IN THEIR DREAMS SELL SUCH INVESTMENTS WHICH GENERATES 21% DIVIDEND YIELD. Which investments has yielded 21% dividend. Majority of their investments are into debt funds.
Disclosure: Not invested, would be waiting for significant correction and more clarity.