Making A Steely Comeback - Mukand

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Mukand, promoted by Niraj R Bajaj, is one of the leading organisations in India engaged in the manufacturing of alloy and stainless steel products. It also has a presence and has proved its leadership position in building heavy machinery that strengthens the sinews of economic power. The company is witnessing some demand revival in its steel products from which the company earns around 83 per cent of the revenues. The company increased the prices of its steel products in the range of Rs 4,000 – 6,000 per tonne in June 2010 which may result in boosting both the topline and bottomline of the company.

The revenue mix of the company stands at 83 per cent from steel products, 15.5 per cent from industrial machinery and the balance 1.5 per cent from the road construction segment. The topline of the company is heavily dependent on the steel products for which the company has seen a subdued performance in fiscal 2009, ending the year in red. But due to the demand revival in its steel products the company has been able to turn back into black in the recently concluded fiscal 2010 and has posted a net profit. The demand for the other segment i.e. industrial machinery is now witnessing some demand revival too.

Mukand’s clientele ranges from big Indian PSUs to Indian private companies.It supplies its high-end steel products to almost all the auto makers like Bajaj Auto, Hero Honda, Maruti, among others.There is no dependence on a single client which is a big advantage for the company. With the increase in volumes in the auto sales’ numbers, the company is also likely to ride high because it earns a good chunk of its revenue from the auto majors. In the span of the next one and a half years the company is likely to monetise its land in Thane and may raise Rs 600 – 700 crore from the same, a chunk of which will be utilised in paying off the debts, which at present stands at Rs 1,774 crore. The company has expanded its capacity in Karnataka and Pune and is looking forward to become a one-stop shop for specialty steel products for the auto engineering industry.  Coming to the financial front, the bottomline of the company is back in black in the recently concluded fiscal 2010 as it posted a profit of Rs 58.87 crore as against a loss of Rs 159 crore in fiscal 2009. The topline of the company witnessed a growth of around 3 per cent in fiscal 2010 on a YoY basis.[PAGE BREAK]

The sales of the company have grown at a compounded annual growth rate of around 6 per cent in the last three years. The return on its net worth stands at 13.54 per cent which is quite decent. The company trades at an EV/EBITDA of 5.67x. The stock trades at a P/E of 8.31x which is much cheaper when compared to other listed peers like Mahindra Ugine Steel, Welcast Steels and Usha Martin. The dividend yield for the company stands at 1.52 per cent. The company may be a good addition to the portfolio of investors who are willing to invest with a longer term perspective. We arrived at a price target of Rs 81, thus providing an upside of 21 per cent for a one-year time horizon.