Hi,
I have been reading up on MA and based on past bull and bear steel cycles, here are two hypothetical scenarios of how the company should look like at the bottom of the current bear cycle, and at the top of the next bull cycle.
Bottom of bear cycle
Expected year ~ FY21 or FY22 (generally its 3-4 years after the last peak)
Topline ~ 2000 cr. (similar to what we have today)
EBITDA margins ~9% (at worse point, margins can go down to 5% as well, but that situation doesn’t last long as most players go into red below 8% margins)
Depreciation ~ 20 cr.
EBIT ~ 2000 * 9% – 20 ~ 160 cr.
Other income ~ 7% * 500 cr. (cash and investments) ~ 35 cr.
Interest charges ~ 0 (no debt now)
PBT ~ 160 + 35 – 15 (miscellaneous expenses) ~ 180 cr.
Tax ~ 25% * 180 ~ 45cr. (SEZ tax benefit is until FY2021)
PAT ~ 130 cr. (peak PAT during last bull cycle was ~292 cr.)
P/E ratio ~ 2
Cash & equivalents ~ 500 cr.
Market cap ~ 2*130 + 500 ~ 760 cr.
Top of next bull cycle
Expected year -> FY21 + 3 years ~ FY24-FY25
Topline ~ 3500 cr. (Current greenfield investment of 275 cr will generate incremental sales of 3 * 275 + nominal growth due to brown field expansion)
EBITDA margins ~ 18%
Depreciation ~ 50 cr. (putting a higher than expected number)
EBIT ~ 35000.18 – 50 ~ 580 cr.
PBT ~ 550 cr. (Miscellaneous expenses of 30 cr.)
Tax ~ 25% * 550 ~ 140 cr. (SEZ tax benefit is until FY2021)
PAT ~ 410cr.
P/E ratio ~ 10
Market cap ~ 41010 ~ 4100 cr. (I am assuming that cash of 500 cr. was spent in growing topline)
Current market cap ~ 1400 cr.
If the cycle plays out according to projects, we can have a 3-bagger in the next 6-7 years, with a potential downside of 50%. I am not looking to buy at current market prices, but will like to hear thoughts from others who have been tracking MA. @jitenp - do you track this company?
Key Risk: SAIL accounts for 80% of domestic procurement (i.e. 40% of overall topline) and they are planning to manufacture their own ferro-chrome.