Headquartered at Kalyaneshwari near Asansol, West Bengal, MAL belonging to the 1,000 crore Maithan Group commenced commercial production of ferro manganese and silico manganese in 1997 with 10 MVA; it grew its capacity by 7.5 MVA in 2000 and 8.26 MVA in 2004 when the market for manganese alloys was weak, indicating the strong commitment to business.
Currently, the capacity stands at 64 MVA at plants located near Asansol, West Bengal (49 MVA) and Meghalaya (15 MVA). The combined capacity is at 120,000 tonnes. MAL has a manganese ore mine in Orissa, which is yet to receive environment clearance.
Investment Rationale:
MAL continues to cater to major integrated steel companies like SAIL, JSW, JSPL, JSL and others, the association with SAIL and JSL being more than 10 years. MAL’s products are high-end and have extended beyond commodity grades to specialized grades and hence it is focusing on exports. MAL enjoys a long-term power supply agreement with Damodar Valley Corporation.
At the beginning of FY09-10, MAL commissioned 15 MVA new plant and 15 MW
captive thermal power plant in Meghalaya at a cost of a `75 crore financed through internal accruals and debts. The power plant accounts for 25% of its power needs and has attained 90% PLF. It also enriched its product mix and created new export markets. MAL is optimistic that these initiatives will strengthen its competitive edge and enhance revenues and profits going forward. Nearly 50% of MAL's exports were made to western countries before the slowdown. The moment it became evident that the shrinking of the western markets was not just a result of the slowdown but part of a longer-term geographic restructuring, MAL sought alternative markets. The urgency with which MAL widened its geographic presence is indicative of its competitiveness; it addressed the growing needs of customers in Asia and the result is that 68% of its exports in 2009-10 were accounted by Asia and only 32% by the western markets.
MAL reduced costs through captive power generation, graduated towards valueadded grades and also embarked on SEZ-centric capacity addition (to be commissioned by FY12 in a subsidiary company.
MAL will be investing `250 crore to be funded through debt and accruals in setting up a ferro alloys plant in Vishakhapatnam. It has also applied for mines in Vishakhapatnam. The project, which will come up in a special economic zone, will double its total capacity by 1, 20,000 tonnes. The Vishakhapatnam plant would go on stream by September-December 2011. The plant will be commissioned as a subsidiary to capitalise on tax incentives, resulting in an efficient fiscal structure. The plant is likely to generate revenues in excess of `700 crore at full capacity.
Key Financial (crore):
Year End March - Q4FY10 FY10 FY11E FY12E
Income - 128.5 478.0 600.0 800.0
Reserves - 102.9 168.4 246.9
BV (Rs.) - x 80.5 125.3 179.1
EPS (Rs.) - 11.6 20.7 44.8 53.8
OPM (%) - 20.5 14.6 19.0 17.6
NPM (%) - 13.2 6.3 10.9 9.8
P/E - x x 3.3 2.7
Mcap, (in Cr.) - 213
52 week H/L - 161/55
Maithan anticipates that with an increasing power deficit, the country will soon be compelled to restrict the export of energy-intensive materials; its 72-MVA plant in the Visakhapatanam SEZ (in a subsidiary company) will insulate it from the downside of this anticipated action and enable it to widen its global user base. In India, the iron and steel industry is the biggest manganese alloy user, accounting for 90-95% of domestic consumption. During FY10, the steel consumption in sectors like automobiles, manufacturing, consumer durables, construction and agriculture increased to 56.3 million tonnes reflecting a growth of 8%. India's per capita steel consumption is a mere 47 kg compared to the world average of 190 kg indicates a huge growth potential. (Source: Ministry of Steel).
Modern constructions like glass and steel buildings require quality stainless steel with high manganese content. An increasing number of Indian railway wagons are being made with stainless steel. Around 10 kg of manganese is required to produce one tonne of mild steel whereas 100-150 kg is required in one tonne of special steel.
MOL is likely to post an EPS of Rs.45 in FY11 and Rs.54 in FY12. At the CMP of Rs.147, the share is trading at a P/E of 3.3x on FY11E and 2.7x on FY12E. We recommend BUY with a target of Rs.200 in the medium term.
Due to increased steel production, the demand for manganese ore and ferro alloys has increased. However, with steel production projected to increase, a large gap between manganese alloys availability and requirement is foreseen. There requirement of ferro alloys to cater to the need of projected steel production will be 1.90 million tonnes by 2020 whereas prevailing ferro alloy production in India is 0.75 million tonnes.
