Target: ₹230

CMP: ₹220.55

Mishra Dhatu Nigam’s (Midhani) Q2-FY23 performance was steady led by higher scrap utilisation.

Key takeaways: EBITDA margin came in at 32.4 per cent, despite firm raw material and power costs, owing to higher scrap utilisation; orderbook rose to ₹1,500 crore (Q1FY23: ₹1,120 crore); H1FY23 value of production (VoP) rose 41.8 per cent YoY to ₹480 crore; launched six new products at Def Expo-22; and 8te vacuum induction melt furnace has fully started at Rohtak (in Haryana) for producing armour plates.

Going ahead, while we see exciting prospects from wide plate mill and Rohtak plant, at ₹500 croe each in steady state, near-term margin pressure is likely to keep stock performance constrained.

Besides, revenue target of ₹1,000 crore for FY23 looks daunting. We re-initiate coverage on Midhani, valuing the stock at 14x FY24 EBITDA, capturing the potential upside from ramp up of wide plate mill and Rohtak armour plant, resulting in TP of ₹230.

We re-initiate coverage on the stock with Hold rating.