Maithan Alloys LtdQ1 FY19Ferrous Metals

Maithan Alloys Ltd

Q1 FY19 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 3

Fundraise

Yes

Order

N/A

Capex

Yes

2 of 4 growth signals are positive.

Revenue guidance

Category 3

→Domestic market growth potential is higher than export market, with increased steel consumption in India driving higher demand for Manganese Alloys.
→Maithan Alloys plans to focus more deeply on the Indian market rather than exports, especially for Manganese products.
→Export focus will be primarily for Chrome products, targeting both domestic and Asian export markets.
→Current capacity for Ferro and Silico Manganese in India is about 2.5 million tonnes, nearly fully utilized, so industry growth via capacity expansion is limited.
→Company’s upcoming Greenfield project in West Bengal will add 1.2 lakh tonnes capacity in about 24 months, boosting production volumes.
→Inorganic growth opportunities are being evaluated, though timelines and scale are uncertain.
→Existing production is close to full capacity (2.25 lakh tonnes in FY19), indicating volume growth will rely on new capacities coming online.
→Overall revenue growth expected to track steel industry growth and increased alloy consumption domestically.

Category 3

→Maithan Alloys targets sustaining long-term EBITDA margins between 15% to 17%, reflecting consistent operating profitability.
→FY19 EBITDA was Rs. 322 crores with margins at 16%; PAT margin stood at about 12.8%.
→Revenue grew 6% in FY19, with manufacturing revenue over 90% of total operations.
→Company plans a Greenfield expansion in West Bengal (1.2 lakh tonnes capacity) expected within 24 months, enhancing future capacity and growth.
→Inorganic growth is actively pursued; acquisition discussions ongoing but timing uncertain.
→Cash reserves (~Rs. 667 crores) are retained for growth opportunities rather than returns to shareholders; investments expected in new plants and acquisitions.
→Operating ROCE is above 60%, indicating efficient capital use underpinning earnings growth.
→No specific EPS guidance mentioned, but strong margin and capacity expansion plans suggest positive earnings and EPS growth ahead.

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Yes

→No explicit mention of immediate new fundraising through debt or equity.
→The company is retaining cash (around Rs. 667 crores currently) to fund organic growth like the Greenfield project and to be prepared for inorganic expansion opportunities.
→Debt aversion is emphasized; historically, debt was taken only to fund one expansion at a time, and loans were prepaid before starting new projects.
→For the Greenfield project, expected CAPEX is around Rs. 275 crores, funded from internal accruals without external financing.
→Inorganic acquisitions are being evaluated but timing and size are uncertain.
→The company prefers to use cash for growth; if unable to deploy cash, may consider returning money to shareholders.
→No plans for large buybacks unless growth opportunities don't materialize.

→Maithan Alloys typically maintains an order book with about 3 months’ worth of orders to ensure continuous production and avoid a zero-order book situation.
→Contracts vary in duration:
→ - Spot contracts (one-time, small quantities) are less preferred.
→ - Fixed price contracts usually last 3-4 months, providing reasonable visibility.
→ - Longer contracts (6-12 months) are fewer and have prices linked to published market indices, allowing price adjustments at shipment time.
→The company actively negotiates prices regularly to maintain this order pipeline and manage pricing risk.
→This approach balances stability and flexibility, ensuring sustained operations without long-term price risks.

Yes

→Greenfield Capex: Maithan Alloys has approved a Greenfield Ferro alloy manufacturing unit in West Bengal with an estimated capacity of 1.2 lakh tonnes per annum and a project cost of about Rs. 275 crores, expected to be completed in 24 months.
→FY20-FY21 Capex: Approximately 20% of the Greenfield project CAPEX will be spent in FY20, with the major expenses in FY21.
→Funding: The entire CAPEX for the Greenfield project will be funded internally; the company is retaining cash (~Rs. 667 crores currently) for growth investments.
→Inorganic Growth: The company is actively evaluating inorganic expansion opportunities but face delays due to third-party issues. No certainty on scale or timing yet.
→Power Investments: Evaluating power sourcing options; board approval taken but no large investments planned.
→Regulatory Delays: Environmental clearances for the Greenfield plant are pending; timeline extended by approximately six months due to approvals.

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