Maithan Alloys Ltd – A Safe and High Potential Multibagger

May 23, 2019

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Strategic Alpha

maithan Alloys Logo

      Maithan Alloys is India’s largest producer & exporter of Mn Alloys with over two decades of experience. Manganese alloys are critical for steel manufacturing translating into a large globally addressable market for Maithan. Co’s customers include marquee
domestic/global steel majors, with most of them being repeat customers.

For more info check: http://www.maithanalloys.com/

 

PRODUCTS:-

1) Ferro Manganese

Ferro Manganese is primarily an alloy of manganese and iron. It contains a high content of manganese and used in steel products wherein silicon content needs to be controlled at low levels. It is mainly used in the production of flat steel, manganese-rich steel, and stainless steel products.

2)Silicon Manganese

Silicon Manganese is an alloy of manganese, silicon, and iron. It is a cost-effective blend of manganese and silicon and is normally the product of choice for steel manufacturers. It is consumed in all steel products and used in higher quantities in 200 series stainless steel, alloy steel, and manganese steel.

3) Ferro Silicon

Ferro Silicon is an alloy of silicon and iron. Silicon acts as a strong steel oxidant. Used primarily in special steels and in small quantities in mild steel. Ferrosilicon is also used for the manufacture of silicon, corrosion-resistant and high-temperature resistant ferrous silicon alloys, and silicon steel for electromotors and transformer cores.

 

INSTALLED CAPACITIES:-

Maithan

 

CLIENTS SERVED BY MAITHAN ALLOYS:- 

MAITHAN CLIENTS.jpg

NUMBERS THE LATEST:-

Market Cap:  1,615 Cr                   Book Value:  384.69                   Promoter holding: 74.99 %  Sales FY19 1,988 Cr                       FY19 Net Profit 255 Cr.             CMP on 23May2019: 554.80

POSITIVES 

  • Debt Free Company with 663 crores of Cash on the balance sheet.
  • Rich Experience of two Decades in producing Niche Products Ferro Silicon, Ferro Manganese. First Generation Promotor S.C Agarwala has around 30 years of Experience in the ferroalloy industry.
  • One of the lowest-cost producers of Ferro Alloys in World: This makes maithan alloys to stand still even during their bad times. This is clearly evident from their last 15 years record. In the Last 15 years, they haven’t had a single cash loss.
  • Ability to shift between different products as per the market demand.
  • Good Capital Allocation skills and risk-averse management. Management has stayed away from any possible mistakes from the last 15 years. with many going for unrelated expansion after having made some money, management of maithan alloys has stayed firm with only ferroalloy producers and make continuous improvement.
  • Long-Standing Client relationships: 75% of Maithan’s clients are repeat customers and 100% of domestic clients are associated with the company for more than 7 years. Long term relationships with clients thus offer Competitive Advantage
  • Maithan has no exposure to Chinese markets.
  • Profit after tax has been grown at an impressive 29%CAGR From FY07 to FY19.
  • Management has given a Guidance of 15 % OPM even in the worst-case scenario, which is best in the industry. This makes maithan stand still even during bad times compared to its competitors.

INTERESTING INFO

  • Promotor Shareholding has gone up from 70% Apx in 2018 to 75% Apx in 2019.
  • The company has been able to increase its capacity by 16% CAGR for the past 13 Years while the industry is growing at 6-7%CAGR. The most interesting part is, most of the capacity expansion that they did was through internal accruals and no debt was taken which shows excellent operational excellence.

Capacity Maithan

production Maithan.jpg

  • Management intends to Double the capacity by 2021, Firstly by 1.5X by 2020 and 2X by 2021. It is planning to invest around 600 crores on both organic and inorganic expansions over the next three years.
  •  Management’s intent to be very conservative and to be focused on their core competencies have made them emerge as a leader in this niche segment. Management intent is clearly evident from the below statements they made in their FY 18 Annual report.

Management Intent

NEGATIVES/POSSIBLE RISKS

  • It was very hard to find any negatives in this company, however just to list out some company’s fortunes are related to steel demand. Any demand slowdown in steel would affect the company’s profitability and thus valuations of stock. Management till now has been very prudent in decision making and capital allocation, there are very low chances of them getting deviated, however, still, change in intent can be negative to the company in the long term.

 

MY TAKE

Maithan Alloys is one of the rare companies in the metal sector which is insulated from the cyclical realities of the industry. Its Lowest cost Manufacturing ability makes them survivor even during bad phases of the cycle, while others shut down their units during bad phases, this company survives and then thrives during good cycles. This has been happening for the last many cycles. With management’s clear focus on passion, looks like they want to be one of the largest producers of ferroalloys in the world, which is not difficult looking at their excellent track record. We do not find any cyclical commodity comp[any which can be held for decades, however with Maithan, is one of those candidates which fulfills all criteria for long long-term stock.

Maithan has been a mega bagger in the past, from 25 Rs in 2014 to Around 1000 Rs in 2018, a staggering  40 Bagger Returns in just 4 Years.
After 1000, During the recent stock market meltdown stock corrected to almost 350, a 70% decline. Around 350 it was at 950Cr Marketcap with  575Cr as Cash on the balance sheet, It has clearly made a bottom there and started its next journey to become multi-bagger once again. Even at CMP stock is available at a very pessimistic valuation, for a company that can double its profits in the next few years.

Personally, for me, Maithan is such an opportunity that I can scale the investment in maithan to 50% of my net worth as the business is into my core competence. I am into the ferroalloy and metal industry for the past 1 decade, so maithan was a no-brainer for me and when I saw management which is such capable, I found it to be the obvious and safest investment.

    Maithan is thus an obvious and a no brainier multi-bagger, with patience we will be able to see the levels of 1000,2000,2500.

Disclosure: We hold Maithan as a core portfolio stock and have the biggest allocation of all other stocks as of 31st May 2019.

Important NotePotential multi-baggers are those stocks that have the potential to give 100 – 500% profits. Obviously, such returns take time. Probably 3 – 4 years or more. Short-term volatility is the reality of the stock market and that will always happen. Short-term movements(upside and downside) are impossible to predict. Only invest funds that you will not need for the next 3 – 4 years. As long as you buy a stock for the right reason and are convinced about the future prospects of the company, there is no need to worry if the share price goes down and stays down for a period of time after you buy; provided you have followed the cardinal stock market mantra BUY LOW.

 

Appendix

See What we Said About Maithan on 31St Jan 2019

maithan Alloys Logo

maithan what we

However, Stock Shown Strong Reversal after Pulwama Incident as the Market was almost factoring in Modi’s second term. We started buying it at 440 odd Levels.

Maithan Cash Opportunity

 

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The author of the blog Mr.Suyog Dhavan is a Full-time Investor / Value Trader and Value investing/Trading Mentor. His style of Investing is inspired by Mohnish Pabrai, Peter Lynch, and Porinju Veliath. He is the founder of Strategic Alpha Wealth, A Premier stock market mentorship firm with a mission to touch the lives of 1Lakh people through its mentorship program.

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