Man Industries a revival in progress

Stock Opportunities Special Situations
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Brief Introduction:
The Man Group was promoted by the Mansukhani family in the 1970. It is a diversified group with its flagship company Man Industries (India) Ltd incorporated in 1988. The Company is engaged into manufacturing of Line pipes, Core Carbon Steel LSAW & HSAW Pipes, API grade ERW Pipes, Seamless Stainless Pipes & Steel Bends & Connectors.
The Company has two facilities at Anjar, Gujarat & Pithampura, Madhya Pradesh totaling 10 MTPA per annum equally distributed between LSAW & HSAW Pipes and recently company has commissioned 1.25 Lakh Tons API grade ERW pipe manufacturing facility. The company has recently declared its foray into Seamless Stainless Steel Pipes manufacturing with capacity of 20,000 tons per annum.

Brief History:
The Company has a history of poor corporate governance due to promoter disputes regarding ownership/Title rights to shares & Acquisition of shares during closer of trading window. The company has two promoter groups mainly JCM group & RCM group. The Bombay High Court has given the statement in favor of the company and currently RCM Group heads the company.

Rationale Behind:

  1. The Company is doing a Capex of around Rs. 170 Crores in setting up API Grade ERW pipe manufacturing facility, Rs. 800 Crore Capex for Seamless Stainless Pipes & DFT technology Pipes & Rs. 75 Crores Capex for Steel Benders & Connectors totaling to Rs. 1045 Crores. Whereas the entire capex in the last decade from FY12 to FY22 was Rs. 403 crores hence, the current capex program is 3x the capex done historically.
  2. Our Take on the company earlier had internal family & promoter disputes but that doesn’t translates into lack of integrity secondly the company faced governance issues primarily related to procedural violation of security laws but, no money was siphoned out of the company.
  3. The current promoter group is making serious efforts to rebuild the image of the company by engaging in quarterly concalls giving raw explanations regarding the historical disputes and timeline by which it will be solved
  4. The Company’s has forayed into value added products that are high margin products which will help company to improve its EBITDA margins (%).
  5. The Company’s traditional business of SAW pipe manufacturing is not a very attractive business & the industry suffers from over capacity plus the ROE for last 10 years has been 10% & MAN industries is also not a industry leader in it. They are however, expanding into high value growth products.
  6. The company is available at a relatively cheap price (P/E ratio: 19.5, 6x PAT of FY24e) which offers good safety of margins to us.
  7. The Natural gas pipeline sector in India is going through structural transformation and is facing strong industry tailwinds as India intends to increase the share of natural gas in energy mix to 20% from current 6% by year 2030.
  8. The government also Target to increase the pipeline coverage by ~54% to 34,500 km by 2024-25 and to connect all the states with the trunk natural gas pipeline network by 2027.
  9. Capex under City Gas Distribution Scheme, Nal se Jal Mission, Jal Jeevan Mission & National River Linking Scheme are further providing strong tailwinds to the sector & LSAW & HSAW pipes are widely used for water transportation.
  10. The SBI lead consortium has supported Company’s expansion plans by granting them working capital & long term debts for their ERW plant they also conducted special audit on the company, they wouldn’t have granted the loan if they would have found siphoning of the fund it is to be noted that the current loan has been sanctioned to the company after the Forensic audit conducted by SEBI & transaction audit conducted by SBI led consortium.

MAN Historical Growth has been Poor:

  1. MAN lost almost a decade due to internal promoter & family disputes
  2. Over the last decade from FY12 to FY22 total cash generated from operations is Rs. 1562 Crores only Rs. 403 Crores were invested back into business.
  3. The company lost the market share and order book to the competitor leading to lack of growth & expansion.
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    Expectations of the Management:
  4. The Company aims to have sales of Rs. 5000 crores or more by FY 2025-26 & growth of 20% CAGR in revenue from now.
  5. The company targets EBITDA margins in the range of 11-15%
  6. The company has an order book of 13,000 crores as on this date and expects conversion rate of 20-25%
  7. The company aims to expand revenue from ERW pipe, Seamless Steel Pipe Sale to Rs. 1700 Crores
  8. Expects sale of Rs. 200 Crore from ERW pipe sale in the current year
  9. The Stainless steel pipe plant will become operational from Q1FY24 & start full fledges production from Q2FY24.
    Concerns for the company:
  10. ERW pipes & Seamless Stainless Steel Pipes is a new sector for the company & does not have existing relationships with clients in this sector
  11. The Company derives majority of its revenue from Oil & Gas industry and even today the capex of this industry is linked to oil prices and the sector goes through cyclical in nature.
  12. The Company has contingent liabilities worth Rs. 406.33 Crores & Disputed Debtors worth Rs. 95.20 Crores however; the company has given guidance that the company will be able to recover the amount.
  13. The promoter groups have dispute regarding right to receive dividends of Rs. 4.45 Crores however; the Bombay high court gave decision in favor of the company and the JCM group has further challenged it in Supreme Court of India.
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Sorry what’s the special situation here? because you’ve tagged Special situation that’s why I’m asking. Thanks

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The Company is has come out of the promoter battel and now it is on the new growth trajectory focusing on new areas of growth & expansion available at decent valuation scale & good numbers.

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As per the Q4 Earning call the unexecuted order book is about 2100 cr.

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Management guiding for 100% rev in 2Y

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In the recent Q1 call, there are certain red flags. Please see below from the recent transcript. There are serious mistakes pointed out by analysts in the presentation. There is lot of confusion on order book and Bid book. I think this business seems risky as 80% of the order book is from Saudi Arabia and looking at current political situation in middle east, I find this business quite risky.
Transcript portions
Dhavan Shah: Sir, this is Dhavan Shah from Alfacurate Advisors. So, my question is on the projected capacity
by FY26. So, in this presentation, I think we have shown that by FY26, we will be having
2,25,000 capacity of ERW versus the last quarter presentation it was showing roughly 2,75,000
tons, so why there is a reduction of roughly 50,000 tons in ERW?
Nikhil Mansukhani: 5,000 tons in ERW?
Dhavan Shah: This quarter presentation is showing 2,25,000 tons of ERW capacity by FY26 and in the last
quarter presentation, it was showing roughly 2,75,000 tons?
Nikhil Mansukhani: So, Dhavan, there might be some clerical error. We will get back to you on that

Pradeep Rawat: Sir, my first question is regarding our ERW CAPEX, so we are planning to expand 100,000 tons
per annum capacity for ERW. So, what would be the CAPEX for this expansion and when could
we assume this plant to be commissioned?
Nikhil Mansukhani: The ERW CAPEX, Pradeep has already been completed and it is under operation.
Pradeep Rawat: So, I am talking about the expansion that we have shown in our presentation. So, currently, we
have a capacity of 1,75,000 tons per annum and we are expecting this capacity to be 2,75,000.
So, I was just asking for that additional capacity?
Nikhil Mansukhani: Pradeep, we will get back to you that. I think there has been some clerical error on that. So, we
will get back to you on that like we said in the first thing, we will get back on that particular
thing.
Dhavan Shah: And when this Saudi Arabia plant would commission?
Nikhil Mansukhani: 12 months.
Dhavan Shah: So, it would be in FY26 only?
Nikhil Mansukhani: Yes.
Dhavan Shah: And so I think in the presentation, we have to update that thing also, right?
Nikhil Mansukhani: Correct. We will send the updated one.
Darshil Pandya: So, just one question from my end, regarding the 10% EBITDA margin guidance that you have
given. So, if we could know that is it because of the order book that we have right now has a
higher margin or how will we achieve that margin in this full year?
Nikhil Mansukhani: The order book which we have now is on the exports are more on the higher margins. So, we
are confident to achieve the yearly guidance which we are giving.
After reading the Q1 Transcript, My confidence level is low and I am thinking of booking profits to be on safer side. Views of more knowledgeable members are requested on my assessment.
Disclosure- I bought at 138-140 level, I am not a SEBI registered advisor and my views are biased and are based on my little understanding of the business. Please make your own assessment for any decision you take.

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As per Q2 performance, they are lifting margin and still they are maintaining margin guidance on full year basis

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Why they are selling Merino shelters?