Midwest IPO — Should You Subscribe? Read HDFC Securities Report For Key Issue Details

NDTV Profit’s special research section collates quality and in-depth equity and economy research reports from across India’s top brokerages, asset managers and research agencies. These reports offer NDTV Profit’s subscribers an opportunity to expand their understanding of companies, sectors and the economy.  

HDFC Securities Retail Research

Involved in the exploration, mining, processing, marketing, distribution, and export of natural stones, Midwest Ltd. will launch its initial public offering today and will conclude on Oct. 17.

The company has fixed the price band in the range of Rs 1014 –1065 per equity share (discount of Rs 101 for all eligible employees). Investors can place bid for minimum of 14 equity shares and in multiples thereof.

The Rs 451-crore IPO consists of a mix of fresh issues of shares worth Rs 250 crore and an offer-for-sale worth Rs 201 crore.

DAM Capital Advisors Ltd., Intensive Fiscal Services Pvt Ltd., Motilal Oswal Investment Advisors Ltd. are the book running lead manager for the issue while KFin Technologies Ltd. is the registrar to issue.

The shares of Midwest will be listed on both BSE Ltd. and National Stock Exchange.

Object of the issue

Offer for Sale

Each Selling Shareholder will be entitled to the proceeds from the sale of their respective Offered Shares in the Offer for Sale, net of their share of the Offer related expenses and relevant taxes thereon in accordance with the Offer Agreement.

The Company will not receive any proceeds from the offer for sale and the proceeds received from the Offer for Sale will not form part of the Net Proceeds.

Objects of the Fresh Issue

Midwest proposes to utilize the Net Proceeds from the Fresh Issue towards funding the following objects:

• Investment in Midwest Neostone Private Limited (“Midwest Neostone”), wholly owned subsidiary, by way of a loan, towards funding capital expenditure for Phase II of the quartz grit and powder processing plant (the “Phase II Quartz Processing Plant”);

• Capital expenditure for purchase of electric dump trucks (“Electric Dump Trucks”) to be used by Midwest and investment in Andhra Pradesh Granite (Midwest) Pvt Ltd. (“APGM”), its Material Subsidiary, by way of a loan, for purchase of Electric Dump Trucks;

• Capital expenditure for integration of solar energy at certain Mines of the Company;

• Pre-payment/re-payment of, in part or full, certain outstanding borrowings of the Company and investment in APGM, by way of a loan, for pre-payment/ re-payment of, in part or full, certain outstanding borrowings of APGM; and

• General corporate purposes.

Further, Midwest expects to receive the benefits of listing of the Equity Shares on the Stock Exchanges, enhancement of the Company’s brand name and creation of a public market for its Equity Shares in India.

Competitive Strengths

• India’s largest producer and exporter of Black Galaxy Granite, a premium variety of Granite.

• Presence across the entire Dimensional Granite value chain with mine to distribution capabilities.

• Emphasis on Research and Development and Technology Integration  Significant establishment costs with a long gestation period benefitting established players.

• Proven track record of financial and operational performance  Experienced Promoters and professional management team with deep industry experience and track record.

Key Concerns

• One promoter received a CBI notice in 2015 related to subsidiary operations, which may affect reputation and management focus. 

• Estimates of natural stone reserves and mine life may differ materially from actual recoveries, impacting financials.

• Mining operations require multiple permits which may face delays or legal challenges, adversely affecting production.

• Ongoing legal cases involving the company, promoters, and subsidiaries may affect reputation and financials; total quantifiable claims exceed Rs.1,500 million.

• Legal dispute and liquidation proceedings with joint venture partner BEML Limited may impact operations and management attention.  Expansion into Quartz extraction, Heavy Mineral Sands mining, and new stone varieties involves operational and market risks.

• Previous auditors gave qualified reports due to subsidiary consolidation and going concern issues, though corrected in FY24.  Top 10 customers contributed over 50% of revenue in recent years; contract terminations or loss could materially affect business.

• Over 50% of revenue is from China, subject to risks like regulatory changes, geopolitical tensions, and logistical disruptions.

• Some historical corporate filings and records are not traceable, which may invite regulatory scrutiny.

• Black Galaxy Granite accounts for ~70% of revenue; disruptions or demand changes may adversely affect financials.

• Planned investments in Quartz plant and electrification face execution and cost overrun risks.

• Operations concentrated in Andhra Pradesh and Telangana may be affected by local political, social, or natural disruptions.

• Reliance on promoters and senior management; attrition or loss may affect business.

• Several subsidiaries and joint ventures have incurred losses, which may continue to affect consolidated performance.

• Sale deeds for certain land acquisitions from promoter are pending, risking financial and operational impacts.

• Mining royalties and fees are significant expenses; upward revisions could pressure margins.

• Over 60% of revenue is in foreign currency, especially USD; exchange rate fluctuations could impact results.

• Power supply disruptions or cost increases could impact production costs and operational continuity.

• Difficulty in securing economically exploitable reserves could impact growth and margins.

• Legal uncertainties and defects in property titles may disrupt operations or increase costs.

• Mining activities carry risks of accidents, explosions, and environmental damage with potential liabilities.

• Stricter laws may increase costs or lead to fines and operational restrictions.

• Industry data is based on CRISIL Report commissioned by company, which carries inherent reliance risks.

• JV agreements entail financial and performance risks due to dependence on partners.

Click on the attachment to read the full report:

DISCLAIMER

This report is authored by an external party. NDTV Profit does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of NDTV Profit.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.