 "Maithan Alloys stands out in the crowd")
In the first three quarters of 2015-16, most alloy companies reported losses the world over and a number of ore mining companies discontinued operations.
The exception was Maithan Alloys Ltd (standalone). The manganese alloys manufacturer reported a profit after tax of Rs 32.7 crore in this period and appears quite likely to finish that financial year with accrual of around Rs 47 crore (my rough calculation).
In a year when manganese alloy realisations collapsed (except in the last quarter, when they sharply revived), Maithan Alloys reported one of the highest profits in its existence.
The more complex it gets, the more simple Maithan Alloys makes it. Most alloy makers work in commodity grades that move the fastest; Maithan elected to manufacture niche low carbon/low phosphorus grades that would hypothetically move the slowest but in doing so, created such a competence that the company is generally sold out a quarter in advance.
Most companies tend to focus on the entire system. Maithan elected to focus on the highest global conversion efficiencies (output generated from a given ore quantity). Most companies first secure their resource needs through direct mine ownership. Maithan remained asset-light, liberated itself from being tied down to a singular ore source, worked with various mine owners, mobilised the best resource mix and at the best trade terms.
Most alloy companies would have invested in captive power generation capacity and reduced production costs. Maithan enunciated that its competence lay in making a superior end-product, minimised investment in captive power generation (except in one unit where such a back-up is available) and bought power off the grid.
Most manganese alloy companies find it tempting to play the ore markets. The intensity of swings turns even the most passive into an active trader; the kind of money that good traders can temporarily make off price swings is considerably higher than the drudgery of manufacturing, marketing and chasing buyers for receivables. Maithan expressed a complete humility in stating it could be right some of the time, wrong most of the time and the quantum of money that could be lost when one was wrong would be considerably larger than when one was right, potentially wiping out all the gains that could be otherwise generated from manufacturing operations.
The result is that after a trading setback in 2008 (the company reported a Rs 100 crore surplus in one half and a Rs 100 crore clean-out in the second), the company established a rule: No taking positions on manganese ore and no keeping of sales positions open. The result is, what one sees in the Maithan bottom line is inevitably a faithful follow-through of its manufacturing competence - no inventory gains or losses in the past few years.
The results? Nearly 75 per cent of the company's 2015-16 revenues were derived from customers of five years or more. Long-term debts were almost nil. Interest cover in excess of 30 times. Steady quarter-on-quarter operating margins.
There is an interesting term used in financial jargon for the competitiveness of such companies.
Moat.
The author is a stock market writer, tracking corporate earnings and investor psychology to gauge where markets are not headed
The exception was Maithan Alloys Ltd (standalone). The manganese alloys manufacturer reported a profit after tax of Rs 32.7 crore in this period and appears quite likely to finish that financial year with accrual of around Rs 47 crore (my rough calculation).
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In a year when manganese alloy realisations collapsed (except in the last quarter, when they sharply revived), Maithan Alloys reported one of the highest profits in its existence.
The more complex it gets, the more simple Maithan Alloys makes it. Most alloy makers work in commodity grades that move the fastest; Maithan elected to manufacture niche low carbon/low phosphorus grades that would hypothetically move the slowest but in doing so, created such a competence that the company is generally sold out a quarter in advance.
Most companies tend to focus on the entire system. Maithan elected to focus on the highest global conversion efficiencies (output generated from a given ore quantity). Most companies first secure their resource needs through direct mine ownership. Maithan remained asset-light, liberated itself from being tied down to a singular ore source, worked with various mine owners, mobilised the best resource mix and at the best trade terms.
Most alloy companies would have invested in captive power generation capacity and reduced production costs. Maithan enunciated that its competence lay in making a superior end-product, minimised investment in captive power generation (except in one unit where such a back-up is available) and bought power off the grid.
Most manganese alloy companies find it tempting to play the ore markets. The intensity of swings turns even the most passive into an active trader; the kind of money that good traders can temporarily make off price swings is considerably higher than the drudgery of manufacturing, marketing and chasing buyers for receivables. Maithan expressed a complete humility in stating it could be right some of the time, wrong most of the time and the quantum of money that could be lost when one was wrong would be considerably larger than when one was right, potentially wiping out all the gains that could be otherwise generated from manufacturing operations.
The result is that after a trading setback in 2008 (the company reported a Rs 100 crore surplus in one half and a Rs 100 crore clean-out in the second), the company established a rule: No taking positions on manganese ore and no keeping of sales positions open. The result is, what one sees in the Maithan bottom line is inevitably a faithful follow-through of its manufacturing competence - no inventory gains or losses in the past few years.
The results? Nearly 75 per cent of the company's 2015-16 revenues were derived from customers of five years or more. Long-term debts were almost nil. Interest cover in excess of 30 times. Steady quarter-on-quarter operating margins.
There is an interesting term used in financial jargon for the competitiveness of such companies.
Moat.
The author is a stock market writer, tracking corporate earnings and investor psychology to gauge where markets are not headed