Recommendation from Mining & Minerals

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

MAITHAN ALLOYS LTD : AN APT ALLY FOR YOUR PORTFOLIO

HERE IS WHY
✓Increasing capacity
✓Strong foothold
✓Huge potential ahead

There are several untapped opportunities available in the markets at every juncture. One such opportunity is arising in the metals sector. It is projected that Steel Industry’s outlook to increase capacity to 300 million tons by 2030. Currently, 1.5 per cent of Manganese Alloy is required to produce each ton of steel. One such company which is the leader in ferroalloys is Maithan Alloys. 

The company has a strong foothold in the global economies as well. It is India’s largest Manganese Alloy Producer and Exporter with 20 years of rich experience and continuous growth. As of now, Asia caters to 74 per cent of global steel demand.

Maithan Alloys is engaged in the business of manufacturing and exporting all three bulk Ferroalloys - Ferro Manganese, Silico Manganese and Ferro Silicon. It is also engaged in the generation and supply of Wind Power and has a Captive Power Plant.

The company is increasing production capacity over the years and its production has grown by 16 per cent CAGR since 2007. It has set up two additional plants in Meghalaya and Vishakhapatnam and started its export business. It successfully delivered its first bulk vessel of 6000 tons to Qatar recently.

All of Maithan's domestic clients are associated with it for over the last seven years, and nearly 75 per cent of its clients are repeat clients. MAL holds 7 per cent of the installed manganese-based ferroalloy capacity in India. It accounts for 1 per cent of the global manganese alloy supply. MAL has considerablybrought down debt levels from over ₹200 crore in the last five years while increasing its cash balance to ₹640 crore. Promoters have articulated that MAL's overall leverage shall not exceed 0.50x, at all times in the future.

The sales for the company have been growing at a 3-year CAGR of 15 per cent. The FY22 revenue stands at ₹2987 crore. The operating profit margin of the company is solid. In FY22, it was 36 per cent. The net profit margin of the company is 27.4 per cent. The company generated ₹818 crore in net profit. The quarterly financial numbers of the company are showing huge growth. In the June quarter, the sales increased 80 per cent QOQ and 22 per cent on a sequential-quarter basis to ₹1020 crore. The balance sheet shows strong fundamentals for the company. In FY22 the reserves of the company were ₹2294 crore. The company generated ₹237 crore of cash from operations in FY22. The company witnessed a strong recovery from Q2 FY21 onwards post relaxation in lockdown restrictions.

Currently, the stock of the company is trading at a PE ratio of 2.81 times and the price-to-book value is 1.20 times. The company's return on equity and return on capital employed is phenomenal at 42 per cent and 54.9 per cent. The company is almost debt free. The liquidity position of the company is sound as well as the current ratio is 4. 

It is expected that there will be strong demand for ferro alloys driven by increased production from steel industries and firm prices of finished products. Due to the positive business outlook, strong fundamentals and high profitability ratios we recommend a BUY on this scrip.