Midhani IPO recommendations: Mixed views on slow moving elephant


The central government’s disinvestment drive will lead to opening of Mishra Dhatu Nigam IPO (Midhani IPO) today for subscription. The PSU manufacturer of special steels, Superalloys and titanium alloys has priced the offer in the rage of INR87 – 90 per share and retail and employee investors will be offered a discount of INR3 per share. Applications can be made for minimum 150 shares or in multiples thereafter. As a side note, read here why big applications are unlikely to help you. Meanwhile, analysts have come up with research notes and the situation is not looking positive for the IPO. Here is a compilation of Midhani IPO recommendations by major brokerage houses.

Choice Broking is positive on the long term prospects of the company. “On valuation front, at higher price band, the company is demanding a P/E valuation of 13.3x (to its restated FY17 EPS of Rs. 6.7). The issue seems to be attractively priced considering its strategic importance, monopoly position in some of it products, virtually debt free operations and healthy financial performance. MDNL has not reported a decline in the revenue in the last 14 years. However, due to the shutdown of one of its hot press (to carry out repair & modernization works), this year (i.e. FY18) it is likely to report a drop in the business. Nevertheless, with the restart in the press in FY19, the company is once again expected to have normal operations. Thus considering the above observation we assign a “SUBSCRIBE” rating to the issue with long term investment horizon,” said analyst Rajnath Yadav.

Prabhudas Lilladher is also positive on the long term prospects of the company. “Given the strong outlook on Defence and Space sector, increasing product basket and high barriers to entry, OFS (offer for sale) of Midhani provides good long-term opportunity with attractive valuations,” said the brokerage house in its research note.

Angel Broking has a neutral view on the IPO and has cited weak order book as a concern. “In terms of valuations, the pre-issue P/E works out to 30.9x 1HFY2018 annualized earnings (at the upper end of the issue price band), which is high considering MIDHANI’s historical two year CAGR top-line & bottom-line growth. Further, MIDHANI has an undersized order book which lacks revenue visibility, coupled with lower return ratios. Considering the above factors, we recommend NEUTRAL rating on the issue,” noted its IPO report.

Midhani IPO recommendations: Avoid calls from Hem Securities, ICICIdirect

Hem Securities isn’t impressed with the IPO’s pricing and the undersized order book. “The company is bringing the issue at p/e multiple of  almost 29  on post issue H1FY18 annualized  eps  at  price  band  of  Rs  87-90/share.  Although co  has most advanced  and  unique  facilities  &  capability  to  manufacture  wide  range  of advanced  product  but  weak  order  book  size  of  Rs  517  Cr  against  strong topline  in  FY16  &  FY17  doesn’t  infuse  optimisim  in  company.  Hence,  we recommend “Avoid” on issue,” recommended the brokerage house.

Finally, ICICIdirect has also added itself in the list of negative Midhani IPO recommendations. While the firm acknowledged Mishra Dhatu Nigam’s strong technological capabilities, it sees negatives like tepid revenue and earnings growth and bleak order book position outweighing the positives. “At the higher price band of | 90, the issue is priced at 8x EV/EBITDA FY17 and 13.3x on FY17 EPS. Over the last four years, the topline and PAT have grown at a tepid CAGR of ~9% and ~8%, respectively. Furthermore, the order book visibility also remains thin (0.7x, order book of | 517 crore vs. FY17 revenue of | 773.3 crore). Hence, we recommend that investors AVOID subscribing to this IPO,” said analysts Dewang Sanghavi and Akshay Kadam in their IPO note.

It is clear from the mixed Midhani IPO recommendations that it might be a risky bet for investors, especially when sentiments in the secondary market are not positive. Although the government is offering a discount to retail investors, the same did not lead to full subscription for Hindustan Aeronautics IPO. Mishra Dhatu Nigam is commanding a small premium of INR5 per share as of now in grey market but this could vanish quickly. Meanwhile, feel free to visit our discussion page on the offer to see what fellow investors think about the company and the IPO.


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