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Mukand


Mukand operates in the specialty steel and industrial machinery segments.

The company supplies steel to the automotive industry; and is one of the leaders in manufacturing heavy duty electric overhead travelling cranes - with the one of the largest domestic capacities in its category.  It works with its group company Mukand Engineers in bidding for projects.   It also aims to jointly bid with IHI Japan in the future.

The company has recently expanded steel capacities, which may lead to higher revenues in the near future.
The company reported reasonably steady performance over the last five years – reporting operating profits of 200cr on revenues of 2,500cr in the last financial year.  It employed a debt load of over 1,750cr (as at 30th September, 2011), which is high relative to its earnings and although it is backed up by assets, it may cause discomfort to shareholders under tight monetary conditions instilled by the RBI.

The fortunes of the business are tied to the auto industry, which is cyclical and exposed to deteriorating demand in a high interest environment.

The industry suffers from periods of overcapacity, as currently, which distresses selling prices.  Moreover, the closure of scrap yards in Europe and the US as a result of adverse weather conditions (snow etc.) puts downward pressure on scrap sale prices.

It is exposed to shortages in iron ore and coking coal supplies, which increases costs and slows down steel production.  This is a result of erratic mining supplies, environmental issues, and logistical problems.   Coking coal supplies and costs are specifically impacted by natural hazards (floods etc.) affecting Australia, which is the world’s largest producer.  It is also exposed to rising commodity prices of nickel, chromium, other alloys, furnace oil etc.  It is unable to fully pass on these cost increases and any increase has a time lag, which impacts profits in the intermediate period.

The business exports some of its stainless steel production to Europe, US, Middle East, etc. since India is not yet a big enough consumer to absorb supplies – this exposes it to a strengthening INR, which makes its products uncompetitive in the global markets.

The crane business is subject to the vagaries of the capital investment cycle and is adversely impact by any slowdown in the execution of customers’ projects.

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