Maithan Alloys Ltd

Questionable Capital Allocation of late. Co’ has become a Fund Manager.

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For Example : Co’ bought shares of HAL recently. It’s a small amount but, what’s their thought process here, it’s a little odd

The co. has 1,788 Cr in investments, mostly in equities which they bought in the last few months. Full year revenue was 1729Cr. with a OPM of 7%. The margins are closer to the lowest margins the company has witnessed in last 10 years. They have switched on the furnace at Impex, which was turned off due to unviable operations. I guess the cycle must be turning, very low margins+starting the furnace. If I remove the investments from the m.cap (3300cr)…then the business which is debt free, is available at 1500 cr, thats P/S of 0.87 and could be a good investment idea.

What I dont like is the mgmt’s unwillingness to distribute the cash to the shareholders. They have made massive equity investments which they should not have done, unwise capital allocation.

Disc: very small allocation, not an advise

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The biggest investment they have made is in NSE 425crs. They have got 13,25,000 shares at the Rs. 3,207 a share. I think unlisted share price of nse is more than rs 5000 a share, which means the company has already made unrealized gain of 50%+ on this investment. If the management can deliver returns in excess of 15-20% on the cash they hold on balance sheet, I think investors still benefit because ultimately book value keeps on expanding. Yes, I agree to an extent doing investments at peak margins and peak valuation is quite risky, especially in current scenario where PSUs are overowned. So, a negative.