Mishra Dhatu Nigam shares: PSU multibagger in bear grip; Sell Midhani stock, says ICICI Securities

Mishra Dhatu Nigam Ltd (Midhani), which has seen its shares plunging 22 per cent in the past one month, has got upward revision in its share price by ICICI Securities to Rs 350 from Rs 300 earlier. That said, the domestic brokerage has maintained its 'Sell' rating on the Midhani stock as it feels post positives are already in the stock price.

The Midhani stock, which is up 102 per cent for the one-year period, has been in the bear grip, as its December quarter results were impacted by an increasing proportion of super alloys, though there was a silver lining in terms of volume growth. Ebitda margin for Mishra Dhatu Nigam at 14.2 per cent was its lowest level since Q1FY21. The implied order inflow in 9MFY24 at Rs 510 crore, largely due to aerospace. Order book as on December 31 was at Rs 1,760 crore, implying book to bill at 1.74 times.

Midhani has commissioned two new facilities for aerospace component testing. "Going ahead, we expect margins to improve as the benefit of low nickel price flows through coupled with improved traction in the aerospace segment. Taking cognizance of better prospects, we raise our EV/Ebitda multiple to 20 times (earlier 17 times), resulting in a revised target of Rs 350 (earlier Rs 300) as we roll over to FY26E. Maintain SELL," ICICI Securities said.

During its conference call, the Midhani management indicated that FY24 is likely to be a transformative year for the company with the commissioning of two facilities

for aerospace component testing, better traction in aerospace and energy segments and ramp-up of titanium alloys capacity. Besides, the recently announced FDI in the space sector is likely to broaden the opportunity universe, albeit at the cost of margins given increased competition.

ICICI Securities said the impressive stock run-up implies that most of these positives are already baked into the current stock price.

"Going ahead, we are positive on MIDHANI’s prospects as both order inflow and order book are continuously expanding. Hence, management has guided for revenue growth of 20 per cent YoY. However, we believe, MIDHANI might not be able to achieve its historical margins of 25 per cent-plus of past six years due to the higher proportion of super alloys and increasing competitive intensity. Taking cognizance of the improving prospects, we raise the valuation multiple to 20 times (earlier 17 times), corresponding to 3 deviations (earlier 2 deviations) above mean," it said.