Showing its mettle

The vigorous turnaround of the ferro alloys sector has highlighted the usual suspects. The unlikely underdog is clearly Maithan Alloys, a company that has been low on profile but high on achievement.

Mudar Patherya | Print Edition: July 10, 2008

Mudar Patherya
Mudar Patherya

One way to pick stocks is to track a turnaround sector and gun for the most visible player. The other is to track a turnaround sector and identify the most underexposed proxy.

The vigorous turnaround of the ferro alloys sector has highlighted the usual suspects: the Navbharats, the VBC Ferros, the Facors and the Rohit Ferro-techs. The unlikely underdog is clearly Maithan Alloys.

Maithan what? Precisely. The company has been low on profile but high on achievement. Consider the numbers: turnover of Rs 378.45 crore, EBITDA of Rs 76.20 crore and net profit of Rs 36.55 crore in 2007-8. You can’t compare this with retrospective numbers as I can’t locate any records on the BSE website.

The suspicious old bean is working overtime. How did the improvement happen? These are the reasons:

• Increase in ferro-manganese realisations from Rs 50-80 per kg in 2006-7 to Rs 80-120 per kg in 2007-8.

• Increase in installed capacity from 25 MVA to 49 MVA (corresponding to an approximate increase in production capacity from 48,000 TPA to 90,000 TPA based on a specific product mix).

• Increase in plant efficiency to 95%; industry average is around 80%.

• Increase in proportion of exports from 25% of sales in 2006-7 to 65% in 2007-8; retained its position as the only exporter (reportedly) of ferromanganese and silico-manganese alloys from India to Japan.

• Competent specialisation in the manufacture of niche ferro alloy products (ferro-manganese and ferro-silicon) through in-house research, resulting in value addition.

• Proximity to ore on the one hand and port (Haldia) on the other

• Stable power cost of Rs 2.90 a unit from DVC.

And this is why I like the company going ahead:

• Maithan has a manganese ore mine on its books. It is awaiting forest clearances and expects to bring it into operational play in 2009-10, extending its value chain.

• The company is expanding its capacity by 15 MVA and 15 MW during 2008-9.

• The company is part of a larger group engaged in the manufacture of ferro alloys (a small governance issue here), which enables it to competitively acquire raw materials.

• It is expecting an increase in exports to 65% of revenues in 2008-9 and 75% in 2009-10 with corresponding value addition.

There has been a sustained increase in ferro-manganese realisations during the current financial year. Maithan claims to have posted revenues of Rs 100 crore during the first two months of 2008-9, raising prospects of annualised revenues of Rs 600 crore (provided there is no reversal in the price or demand trends). The company reported an EBITDA margin of 20% for 2007-8 and given the prevailing realisations it would not be unreasonable to expect a 500 basis point increase (provided raw materials do not poop the party). Equity Rs 9.70 crore.

Get busy with the calculator.

Patherya heads Trisys, an annual reports consultancy. His column identifies stocks that are not in the limelight He can be reached at mudar@trisyscom.com

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