Manaksia Ltd: Undervalued metal stock
(BSE Code: 532932) (CMP: Rs.41.70) (FV: Rs.2)
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.