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REGISTER NOW OR LOGINMaithan Alloys Ltd. (NSE: MAITHANALL) is among India’s leading manufacturers and exporters of manganese alloys. Started in 1995, the company has come a long way with multi-locational plants and a growing international presence. The company has a strong footprint in over 35 countries worldwide. Maithan Alloys manufactures alloys that enhances the properties of steel. India has replaced Japan as the world’s second largest steel producer according to data from the World Steel Association (WSA). As a large manufacturer of niche techno commercial products, Maithan Alloys should benefit from growing demand for steel products.
Maithan Alloys Positives
a) Well positioned to benefit from growing steel demand - Maithan Alloys produces ferro alloys which enhance steel strength, durability, anti-corrosion, and anti-stain properties. About 1.5% of manganese alloy is required to produce each tonne of steel. Rising demand for steel acts as a tailwind for Maithan Alloys. Maithan Alloys engages in manufacturing niche products like ferro manganese, silicon manganese, and ferro silicon. With two decades of experience, the company has successfully developed a basket of some of the most valuable techno-commercial products. The company has a strong foothold in the growing Asian markets which caters to nearly 70% of global steel demand. Moreover, the Indian steel industry outlook to increase capacity to 300 million MT by 2030 should drive demand for ferro alloys.
b) Strong Client Relationships grants a competitive edge - Maithan enjoys strong credibility in the market right from suppliers to end customers. The company’s major customers are leading steel companies in the world. Some of its bigger customers are JSW, SAIL, Jindal Steel etc. The strength of Maithan’s client relationship can be gauged from the fact that all of the company’s domestic clients are associated with it for over the last seven years, and nearly 75% of its clients are repeat clients. Maithan’s association with SAIL and JSL is more than a decade old now.
c) Growing Capacities to support profitable growth - Maithan Alloys deploys a good mix of organic as well as inorganic expansion. The company’s production has grown by 16% CAGR to 225,000 MT in 2018, from just 42000 MT a decade ago. Maithan Alloys has been increasing its capacity at strategic locations to support production growth. The company is setting up a greenfield ferro alloy manufacturing unit in West Bengal with an estimated installed capacity of 1,20,000 MT per annum for diversification of its product portfolio. It is also working on other expansion plans.
d) Operational efficiency and Good Financial Metrics - Over 20 years of focused experience in ferro alloy manufacturing, has led to Maithan Alloys attaining undisputable operational discipline. The company focuses on enhancing operational efficiency and moderates cost to drive profitability. In this regard, it sources its raw materials based on long-term relationships with suppliers.
Over the last six years, Maithan Alloys has registered double-digit CAGR in all of its major financial metrics like revenues, profits, and earnings as can be seen from the graph below. The company ranks amongst the lowest in the cost curves with optimum capacity utilization and high tonnage output.
Maithan Alloys’ Investor Presentation
Risk
Investors are concerned about the company operating at full capacity and no new greenfield expansion coming online for the next two years. There is very little room for volume growth and only the commodity prices can help get more realization in the future. However, the fundamentals of the company are strong and driven by future demand growth.
Valuation
Though the stock performance has been dismal during the last year, shares of Maithan Alloys have gained more than 80% over the last five years. The company has a market capitalization value of INR 1,000 crores and is currently trading near INR 360 mark.
Source: Money Control
Maithan Alloys has a robust balance sheet and enjoys high net cash credit ratings. It has considerably brought down debt levels to INR 4 crores from over INR 200 crores in the last four years, while increasing its cash balance to INR 550 crores from just over INR 60 crores, during the same time.
Maithan Alloys focuses on generating high ROCE and lower-than-market debt ratios. It has reported a 50% average ROCE in the last three years, which makes it an attractive investment proposition. The company is confident of sustaining long-term EBITDA margins of 15%- 17%. It also pays a dividend from time to time.
Conclusion
As India’s largest manganese alloy producer and exporter, the company is well positioned to benefit from the favorable demand-supply dynamics in the Indian steel industry. Operating efficiency, product mix and strong client relationships have supported Maithan Alloys in gaining market share both in domestic and international markets. The company is performing well for the last few quarters which could be attributed to the recovery in steel demand. The demand should sustain given India’s robust steel production targets and increasing global demand. Maithan Alloys is poised to be a good long term investment to play the secular growth in the steel industry.
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