Manaksia Ltd: Un­der­val­ued metal stock

(BSE Code: 532932) (CMP: Rs.41.70) (FV: Rs.2)

Money Times - - Expert Eye - By Vi­hari

In­cor­po­rated as Hin­dus­tan Seals Ltd in De­cem­ber 1984, Manaksia Ltd is the flag­ship com­pany of the Manaksia group. Dur­ing FY15, the Manaksia group was split into five sep­a­rate en­ti­ties: Manaksia In­dus­tries (now BKM In­dus­tries); Manaksia Alu­minium; Manaksia Steels; Manaksia Coated and Metal In­dus­tries; and Manaksia Ltd. Be­fore the de­merger, Manaksia was en­gaged in the trade of steel prod­ucts, alu­minum rolled prod­ucts and roll on pil­fer proof (ROPP) clo­sures. It has 18 man­u­fac­tur­ing plants in In­dia, 1 in Nige­ria and 1 in Ghana. It has three sub­sidiaries in In­dia i.e. Mark Steels, Manaksia Over­seas and Manaksia Ferro In­dus­tries and three sub­sidiaries abroad i.e. MINL Ltd, Jebba Paper Mills Ltd and Dy­nat­ech In­dus­tries (Ghana). It en­joys the ben­e­fits of tax­a­tion for many of its op­er­a­tions. Mr. Bas­ant Agrawal and Mr. Suresh Agrawal are the pro­mot­ers of the com­pany. Manaksia op­er­ates through the fol­low­ing seg­ments: Pack­ag­ing Prod­ucts; Metal Prod­ucts; and Oth­ers. Its ‘Pack­ag­ing prod­ucts’ seg­ment is en­gaged in the man­u­fac­ture and sale of pil­fer proof (PP) cap, crown clo­sures, metal con­tain­ers, ex­panded poly­eth­yl­ene (EP) lin­ers, washer and EP sheets. Its ‘Metal prod­ucts’ seg­ment man­u­fac­tures and sells alu­minum and steel gal­va­nized sheets and coils while the ‘Oth­ers’ seg­ment is en­gaged in the man­u­fac­ture and sale of ma­chines and spare parts, alu­minum semi-rigid con­tain­ers, ta­ble foil, printed metal sheets and cor­ru­gated boxes made of card­board. Its alu­minium rolled prod­ucts in coil and sheet form are used in clo­sures, bus bod­ies, floor­ing and gen­eral en­gi­neer­ing pur­poses; colour coated (pre-painted) coils and sheets are used in the man­u­fac­ture of heat ex­changer fins for ACs; and alu­minium al­loy in­gots find ap­pli­ca­tion in the steel and au­to­mo­tive in­dus­tries. ROPP clo­sures find ap­pli­ca­tion in the liquor and phar­ma­ceu­ti­cal sec­tors; Crown Clo­sures are used for beer and car­bon­ated soft drinks; Plas­tic Clo­sures are used for car­bon­ated soft drinks and min­eral wa­ter. Its value-added steel prod­ucts com­prise Cold Rolled Sheets, which are used in in­te­rior and ex­te­rior pan­els of au­to­mo­biles, buses and com­mer­cial ve­hi­cles; Gal­vanised Cor­ru­gated Sheets, which are used in ru­ral hous­ing and fac­tory build­ings; Gal­vanised Plain Sheets, which are used in the man­u­fac­ture of con­tain­ers and wa­ter tanks; and Colour Coated (Pre-painted) Coils and Sheets, which find ap­pli­ca­tion in con­struc­tion, hous­ing, con­sumer durable and other in­dus­tries.

With an eq­uity cap­i­tal of Rs.13.1 crore and re­serves of Rs.976.5 crore, Manaksia’s share book value works out to Rs.152. Manaksia is a cash-rich com­pany with cash of Rs.482 crore and loans and ad­vances given of Rs.175 crore as at FY18. This amounts to Rs.657 crore or Rs.100/share. The value of its fixed as­sets was Rs.356 crore while bor­row­ings were just Rs.48 crore. The pro­mot­ers hold 63% of the eq­uity cap­i­tal, which leaves 37% stake with the in­vest­ing pub­lic.

In­dia’s crude steel pro­duc­tion is ex­pected to grow ~8% to reach 108 MMT by 2018 and make it the sec­ond largest pro­ducer of steel glob­ally. The global de­mand for alu­minum grew ~4% in 2017. In the do­mes­tic mar­ket, the de­mand for steel has im­proved com­pared to Sep­tem­ber, led by user-in­dus­tries.

The metal pack­ag­ing mar­ket, which is buyer-ori­ented, has grown con­sid­er­ably due to the resur­gence of the F&B in­dus­try. The global metal pack­ag­ing mar­ket is ex­pected to grow at ~3% CAGR to reach $135.69 bil­lion by 2020. Manaksia is en­gaged in the lu­cra­tive metal seg­ment. The huge de­mand for its prod­ucts cou­pled with bright prospects of user in­dus­tries au­gur well for the com­pany. Also, the man­age­ment is fo­cused on im­prov­ing its per­for­mance. It is mak­ing cer­tain tac­ti­cal changes to re­duce over­heads and boost profitabil­ity. Based on its bright busi­ness prospects driven by the ris­ing de­mand from end-user in­dus­tries, Manaksia is ex­pected to do well go­ing ahead. It is ex­pected to notch an EPS of Rs.15 in FY19. At the CMP of Rs.41.7, the stock trades at a for­ward P/E of just 2.8x on FY19E EPS. A rea­son­able P/E of 4.5x will take its share price to Rs.68 in the medium-to-long term.

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