Mishra Dhatu Nigam (MIDHANI) share price gained nearly 3 percent intraday on January 8 after ICICI Securities initiated coverage with a buy call on the stock, citing increase in Indian space expenditure.
Mishra Dhatu is a superalloy and titanium alloy manufacturer, catering to the very niche segment of maraging/super alloy steel segment in India.
"Increase in Indian space expenditure budget has been one of the key tailwinds for MIDHANI. Significant expenditure budget CAGR towards space (15.8 percent CAGR over the past six years), joint product development with Indian Space Research Organisation (ISRO) for strategically important materials, relatively small scale of operations, all tilt the risk-reward in favour of MIDHANI," said ICICI Securities which expects the stock to touch a target price of Rs 242, implying 55.5 percent potential upside from current levels.
A sudden drop in space contract inflow/execution is the key risk to its call, it added.
The brokerage said the capability of Vikram Sarabhai Space Centre (VSSC) has allowed the expenditure to trickle down to domestic players like MIDHANI, who has also seen its space order book inflate to Rs 310 crore in FY19.
"The increase in space order book and execution has improved MIDHANI's profitability metric and has helped working capital as well. The story of MIDHANI, at least for the next 2-3 years, is that of achieving moderate scale fanned by the tailwind of space budget expenditure," it added.
ISRO has been a game-changer for MIDHANI. As space contributed around 55 percent of the first half of FY20 topline, margins expanded to 29.9 percent. Despite FY17-19 seeing a decline in volumes, value triumphs as MIDHANI reshapes its deliveries towards maraging steel – a Ni heavy alloy steel.
ICICI Securities said MIDHANI's facilities are under-utilised, given the batch production process and niche product segments it caters to. "As ISRO fulfils its potential of probable launches, higher volumes to Midhani can help reverse some losses on account of current underutilization of the company’s facilities."
The stock was quoting at Rs 155.75, up Rs 0.15, or 0.10 percent on the BSE at 1150 hours IST.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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