Mukand Ltd - Rs.84.00

Established in 1937, Mukand Ltd (ML) is one of the largest manufacturers of specialty Carbon/Alloy steel and Stainless Steel. Its Stainless Steel Division caters to the demand from fasteners, industrial components, surgical instruments, weaving wires, industrial springs, heat resistant chains, wire mesh, cutlery, kitchen utensils, etc. Alloy Steel is used in transmission parts, engine components, steering components, high tensile fasteners, fuel injection pumps, bearings and springs. The Specialty Alloy Steel made by the company is mainly supplied to auto ancillary and engineering industry. It supplies to almost all the players in the auto sector like Tata Motors, M&M, Maruti, Bajaj Auto, Hero Honda, Sundaram Fasteners, Lakshmi Precision Screws, SKF India, Hi-Tech Gears, Sona Koyo, MICO, Rane (Madras), etc in the auto component sector. Although it derives major revenue from the Steel Division, it also operates in other two segment namely Machinery Building & Road Construction. In the heavy machinery segment the company builds EOT cranes, gantry cranes, bulk material handling system, process equipment for steel, cement, aluminium, copper and power plants. Mukand is among the largest suppliers of high capacity EOT cranes in India boasting of an impressive client list comprising NTPC, NHPC, ISRO, DRDO, SAIL, BHEL, NALCO, Tata Group, Jindal Group, L&T, Hindalco, Vedanta Group, Essar Group, etc. For road development, the company has entered into a tie-up with one of the largest highway construction companies in Russia-Centrodorstroy. Recently, it completed 168km two-lane highway construction project which is a part of a cumulative 600 km four lane highway project being undertaken at NH-2 in UP worth Rs.700 cr.

Mukand’s manufacturing facility is spread across Kalwe in Maharashtra and Hospet in Karnataka (this facility is shared with Kalyani Steels Ltd. having 42% share) The Kalwe plant manufactures stainless steel and has a capacity of 150,000 MTA. The value added facilities at Kalwe enables the company to manufacture highly customized specialty steel and stainless steel products like wire rods, bars, rounds, bright bars and wires. Its machinery building plant is also located adjacent to its steel plant. Whereas its Hospet plant manufactures more than 400 varieties of alloy steel products in the form of bars, wires, wire rods and bright bars. Mukand also has leased an iron ore mine for captive consumption. The company is in the process of bidding for a third mine and extending the lease of the present mines. To cash in on the boom, the company is expanding its Hospet capacity from 1,60,000 to 2,90,000 MTA in phases by FY08. It also has plans to enhance its finishing facilities, rolling facilities and fabrication/assembling facility at Kalwe. The total capex envisaged over the next two years is around Rs.250 cr. for specialty steel and Rs.30 cr. for heavy machinery division, which would be met from internally generated funds.

Mukand is undergoing a major financial restructuring to improve its balance sheet and bring down its to Rs.980 cr. end by FY06 and to Rs.790 cr. by FY07 (i.e. 1:1 debt/equity ratio). It is also replacing high cost debt with low cost debt and intends to bring down the average cost of debt to below 8%. As the interest cost is almost 6 ¬ 7% of its revenue, debt restructuring will boost the bottomline in FY07 coupled with stable operating margins. For FY06, Mukand is estimated to report turnover of Rs.1650 cr. and NP of Rs.78 cr. i.e. EPs of Rs.11 on its current equity of Rs.73.13 cr. For FY07, NP may shoot up to Rs.130 cr. i.e. EPS of Rs.18 due to saving in interest cost and the booming economy. So, only long-term investors are recommended to buy this scrip at CMP with a price target of Rs.150 (50% return) in 15 months.