Megatherm - Mega Opportunity

Mohit_baid · February 13, 2024, 6:47am

Incorporated in 2010, Megatherm Induction Limited manufactures induction heating and melting products using electrical induction such as induction melting furnaces and induction heating equipment.[1]

KEY POINTS [ edit ]

Business Profile [1] The company manufactures upstream and downstream equipment and machinery for steelworks, such as transformers, ladle refining furnaces, continuous casting machines, fume extraction systems, etc., as well as electric arc furnaces for the alloy and special steel industry.

Turnkey solutions [1] The company also offers turnkey solutions for steel plants, which include the planning, engineering, delivery, assembly, and commissioning of steel plants with its own or outsourced systems and machines, as well as customer service with maintenance contracts and spare parts business.

User Industries [1] Megatherm’s key market segments are Secondary steel producers that recycle scrap, primary steel producers that convert iron ore into sponge iron and then convert it into steel through induction melting, automotive suppliers, Ordnance factories and railroads, DI pipe manufacturers, and various engineering industries that produce critical parts in their casting, forging, and metal processing facilities.

Product Portfolio [2][3]
Induction melting furnace
Induction Billet Heaters
Induction Hardening & Heat-Treating Equipment
Induction Heating Power Source (Static Frequency Converter)
Transformer
Ladle Refining Furnace
Electric Arc Furnace
Continuous Casting Machine (CCM)

Manufacturing Facilities [2] Co’s Induction’s manufacturing unit is located in Kharagpur and has a production capacity of around 300 furnaces and transformers.

International Presence [4] The company exports products to South America, Africa, the Gulf region, Europe, SAARC, and Southeast Asia.

Geogrpahical Revenue Bifurcation [4]
Domestic - 74.5% in FY23 vs 80% in FY22
Exports - 25.5% in FY23 vs 20% in FY22

Employee Count [5] As of July 31, 2023, the company had 278 permanent employees.

Clientele [6] BHEL, Indian Railways, Tata
Motors, Mahindra, CESC, Hindalco, Sundaram Fasteners, MM Forging, Talbros Axles, Shyam Metalics, Sarda Energy, Rashmi Metaliks, Prakash Industries and others

Revenue Bifurcation Customer-wise [6]
Top 10 Customers - 42% in FY23 vs 31% in FY22

Strong Order Book [1]
As of December 31, 2023, we have an order book of approximately Rs. 280 Crs.

IPO Details [7]Co. intends to raise 53.9 Crs through the IPO which will be utilised for:
A) Funding capital expenditure
B) Working Capital requirements.
C) General Corporate Purpose.

MEGATHERM INDUCTION LTD												SCREENER.IN

Narration	Jan-00	Jan-00	Jan-00	Jan-00	Jan-00	Jan-00	Mar-20	Mar-21	Mar-22	Mar-23	Trailing	Best Case	Worst Case
Sales	-	-	-	-	-	-	131.63	109.01	187.83	265.88	-	376.36	265.88
Expenses	-	-	-	-	-	-	115.94	95.85	179.26	238.33	-	343.40	265.88
Operating Profit	-	-	-	-	-	-	15.69	13.16	8.57	27.55	-	32.96	-
Other Income	-	-	-	-	-	-	0.57	0.26	-	0.55	-	-	-
Depreciation	-	-	-	-	-	-	2.28	2.10	2.06	2.43	-	-	-
Interest	-	-	-	-	-	-	5.92	7.06	4.99	5.84	-	-	-
Profit before tax	-	-	-	-	-	-	8.06	4.26	1.52	19.83	-	32.96	-
Tax	-	-	-	-	-	-	2.53	1.16	0.42	5.83	-	0%	0%
Net profit	-	-	-	-	-	-	5.53	3.09	1.10	14.00	-	32.96	-
EPS	-	-	-	-	-	-	6.06	3.38	1.19	15.16	-	17.49	-
Price to earning											-	-	-
Price	-	-	-	-	-	-	-	-	-	-	278.45	-	-

RATIOS:
Dividend Payout	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
OPM	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	11.92%	12.07%	4.56%	10.36%	0.00%


						TRENDS:	10 YEARS	7 YEARS	5 YEARS	3 YEARS	RECENT	BEST	WORST
						Sales Growth				26.41%	41.55%	41.55%	26.41%
						OPM	9.36%	9.36%	9.36%	8.76%	0.00%	8.76%	0.00%
						Price to Earning					-	-	-

Risk -

Moderately large working capital requirement: The company had gross current assets (GCAs) of 164 days and inventory of 109 days as on March 31, 2023. Inventory primarily consists of work in progress (WIP). The working capital cycle is likely to remain moderately and hence, a key monitorable.
Susceptibility to volatility in raw-material prices and foreign exchange rate fluctuations apart from MIL’s presence in the cyclical capital goods industry: MIL is exposed to the risk of cyclicality inherent in the end-use industries such as metals and mining and the capital goods industry. New orders or repeat orders largely depend on the economic condition as the new or expansion projects by industries mainly depend on the level of expected economic growth. However, MIL has largely been able to insulate itself from the inherent cyclicality associated with the industry due to its presence in a niche segment and by catering to clients across diverse geographies (within as well as outside India) as well as due to good share of spare parts and service income at around 15-20% of its total sales

Disclosure - Invested

Mohit_baid · February 13, 2024, 6:50am

Ashish kacholia has entered the stock on 8/2/24 at a price of Rs.225/share.

I also happened to speak with the company’s management and they are positive about their growth rate and expect it to continue improving. They are also receiving a steady flow of orders. The company is working to reduce the time it takes for debtors to pay and is moving toward a cash-and-carry model. Industry tailwinds remain strong as they cater to most of the high-growth industries like power, solar, railways, and infra.

The following are the key industries –

Secondary Steel producers involved in scrap recycling.
Primary Steel producers involved in the conversion of iron ore into sponge iron & subsequent conversion into steel through Induction
Melting.
Auto ancillaries
Ordnance factories & Railways
DI pipe producers and diverse engineering industries involved in producing critical parts in its captive casting, forging & metal
working units

Mohit_baid · February 14, 2024, 5:07am

Promoters held 72.71% of the company post IPO.

Mohit_baid · February 14, 2024, 5:45am

A brief on the industry tailwinds and growth prospects -

Source - RHP

Mohit_baid · February 21, 2024, 4:37am

They have only two contingent liabilities and are self-explanatory considering the nature of the business, there is a Guarantee issued by a bank and a Letter of credit by a bank which totals around 31 crores which is not a lot considering 266 crores in sales.

Mohit_baid · February 24, 2024, 2:50pm

First order after listing.
What’s likable here is the payment terms these guys get into, helping them keep their working capital days and debtor days as low as 12 and 32 days.

https://nsearchives.nseindia.com/corporate/MEGATHERM_24022024143035_UPDATEMEGATHERM.pdf

Mohit_baid · February 26, 2024, 2:58pm

Just in, Debt reduction.
https://nsearchives.nseindia.com/corporate/MEGATHERM_26022024180059_UPDATESMEGATHERM.pdf

Sri_73 · March 28, 2024, 8:21am

Hi Mohit, just read your thread completely, looks good to me by the nature of working capital, client advances and good runway, can you please help me with competitors and size of industry and what is their vision for 2 to 3 years, no position as of now

Mohit_baid · March 30, 2024, 6:04am

Hi, Glad you read through.
See it’s hard to identify all the players as a lot is happening outside the listed space right? but one listed player that I came across is Transformers and Rectifiers India Ltd.. To invest it is only wise to dig deeper so I would suggest you go through this and a couple of interviews to start with -

For Industry size, competition, risks, opportunities, etc…

For a glimpse into the vision part you were talking about -

4 years old but partially relevant even today.

Amit_Paul · March 30, 2024, 6:50am

Thanks for the write-up. Have you come across the revenue distribution figures across various product portfolios ? I asked this question since you mentioned one of the competitor is TRIL.

Prabhat_Mohanty · March 30, 2024, 7:24am

The tag line is very misleading. The mega opportunity is gone. May be it was a mega opportunity for those who received allotment in IPO. Compared to IPO price of 108, it is prevailing above 250. But for those buying now, it is a huge risk. There is execution risk. Risk reward ratio is skewed against the investors. Any sell off for any reason will lead to disproportionate loss in share price due to illiquid nature of the stock. Most important is no room for averaging. Would have bought few if it would have been in main board. But as it is present, there is no rationale in investment. It is rather a lottery of huge risk.

Sri_73 · March 30, 2024, 10:47am

Thanks Mohit…I think we will get more information soon as they have appointed IR Kaptify. I am planning to take a small position and build on as I get more conviction

Mohit_baid · March 31, 2024, 5:57am

Only time will tell if the title is “very misleading” or not. Thank you for all the inputs you gave based on your experience.

Disclosure - Invested

Mohit_baid · April 12, 2024, 5:26am

Ankit_Bahuguna · April 13, 2024, 5:57am

IMHO Mega opportunity has nothing to do with “how much a company has run in past” only the future run from current price determines the mega opportunity. Megatherm is just 500 cr mcap company and one needs to check whether it has potential of becoming 2500 -5000 cr company or not, if yes then still a long runway is there and no need to look IPO price. In microcaps, big investors enter after listing only as 1 or 2 lots don’t matter to them.
I think the company is good and one needs to track its progress from here.

THE_TECHNICAL_ANALYS · April 13, 2024, 12:09pm

Visited office recently and may be next week will visit to their factory. The company is having potential to show growth in their topline going forward and it is going to reward their stakeholders as well. One small thing just wants to add that staffs are very happy and working environment is really good . The office building worth more than 70 to 80 cr market value ,

Mohit_baid · April 24, 2024, 4:18pm

https://nsearchives.nseindia.com/corporate/MEGATHERM_24042024181154_InvestorPresentation24042024.pdf

Ansh_Jain · April 26, 2024, 7:01am

Hey, @THE_TECHNICAL_ANALYS did you visit the factory? What’s your review?

This seems a fundamentally good company with strong promoters, excellent working capital cycle, and it has strong tailwinds with metal cycle turning. The only concern I’ve with this company is regarding market size and revenue potential.

A few reports suggest that market size is really small, ~$85M in India and the company is already doing revenues worth $35M, is there room for growth? To check the global size, I found out some other major players like Otto Junker (Germany), Ajax Toxco (US), Ningbo (China) and found out that they have revenues in a similar range or less than Megatherm, which means the company is not only a major player in India but around the world.

If the company is already a major player around the globe, and induction furnace market grows at ~6% (src), where are the future revenues going to come from?

On the positive side, I believe 2 things can help this - promoters and metal cycle. Promoters here have deep knowledge of technology and outstanding relationships which should continue to help the company. And due to metal up-cycle, steel players are going to invest in electric furnace rather than traditional blast furnace due to 2 reasons - improved output and lower emissions. Tata Steel UK has announced plans to build £1.25B electric arc furnace in Wales which is huge.

I’d still love to know more about market size and future revenue potential for the company, if anyone can share their learnings. @Mohit_baid do you have some insights on this?

Mohit_baid · April 28, 2024, 11:23am

Some information that I came across that should help you figure out the potential India’s steel industry currently possesses which will contribute to the growth of ancillaries, also do not forget the Paris Agreement. For more info, I suggest going through RHP page - 93 onwards.

Elecon’s Q4FY24 con-call -

Another factor confirms the trend -