Business Profile of the Midwest Limited

Midwest, a leading company in the granite mining and processing industry, has grown significantly over the past four decades. The company mines over 1.37 million cubic meters of granite annually, accounting for 10.8% of overall black granite production in India during FY24. Midwest is also the largest producer and exporter of black galaxy granite.

The company exported 48,249 cubic meters of Black Galaxy Granite in FY24, accounting for approximately 23% of overall black granite galaxy granite exports volume in fiscal 2024. With a planned capacity addition of 0.5 mnT of quartz grit for solar glass manufacturing, Midwest is expected to cater to 15-18% of demand in FY29.

Midwest Limited IPO Objective

As per the draft red hearing prospects, the IPO issue consists only of offer for sale.

• The OFS consists of up to XXXX Equity Shares aggregating up to Rs. 4, 000 million. Nothing from those proceeds of OFS will be allotted to company.
• Midwest IPO offer only has fresh issue of Rs. 2, 500 million. As per DRHP document, the company aims to utilize IPO proceedings towards funding capex of its subsidiary, purchase of electric dump trucks, capex of solar energy integration, payment of certain borrowing and general corporate purposes.

(₹ Million)

IPO Details of Midwest Limited:

Issue Price & Size: Midwest Limited IPO

The issue price of Midwest Limited hasn’t been released yet. Upon releasing the dates, the investors can bid between those price ranges. The company has both fresh issue of Rs. 250 crores as well as offer for sale of Rs. 400 crores.

Launch Date of Midwest Limited IPO

The IPO opening date of Midwest hasn’t been officially announced yet, upon the declaration of dates investor can bid for IPO.

Midwest Limited Financial Statements

Midwest Limited Promoters & Shareholding

As of date of filing the DRHP, there are four promoters of the company. The promoter in aggregate holds 84.58% of the paid-up share capital of company.

Should You Subscribe to Midwest Limited IPO or Not

While investing or subscribing to any IPO, consider the investment rationales related to the company. Hence, here you can find out the strength of the company that will be its growth factors. And also check the risk factors that can affect the growth and operational efficiency of the company.

Competitive Strengths of Midwest Limited:

India’s largest producer and exporter of Black Galaxy Granite

Black Galaxy Granite, a premium stone used in high-value real estate projects, is available in only one village in Andhra Pradesh. India's largest producers and exporters of Black Galaxy Granite have produced 57,519 cubic meters of this stone during FY24, holding a 23% share of the Indian export market. The company operates three Black Galaxy Granite Mines. The sale price for Black Galaxy Granite ranges between ₹50,000-100,000 per cubic meter, while the sale price for black Granite ranges between ₹30,000-75,000 per cubic meter.

Black Galaxy Granite is popular among architects, designers, and builders due to its exceptional durability, strength, and color pattern. Synthetic alternatives often lack the natural variations and unique patterns found in authentic The natural stone mining industry in India largely comprises unorganized and fragmented players, and strategic planning and substantial financial resources are essential for sustained success.

The company is continuously evaluating opportunities to expand its resource base by developing additional Mines in areas abutting its existing operations. Given the significant demand for Black Galaxy Granite, exclusive mining rights over proven reserves, experience in mining and processing of Black Galaxy Granite, and established customer base, the company is well positioned to cater to this growing and high-value market segment.

Presence across the entire Dimensional Granite value chain

Dimensional Granite operates a warehouse in India, delivering slabs on flatbed trucks to ports like Chennai, Krishnapatnam, and Kakinada. They use flexible supply chain models to meet customer and distributor needs, offering delivery modes ranging from ex-mine to cost-insurance-freight. They also assist customers in arranging shipments through a network of freight forwarding and shipping agents.

Their presence across the Dimensional Granite value chain allows them to cater to customers more effectively, creating enhanced customer value. They maintain optimal inventory levels closer to primary consumption markets like China and Italy, and assist distributors in securing favorable shipping rates. Their network of distribution agents helps in accurate estimation of market demand, allowing them to prepare production plans and inventory levels.

Emphasis on R&D

With a dedicated team of nine personnel, the company emphasizes on R&D in expanding its resource portfolio and developing methods to increase operational efficiency, reduce costs, and improve product quality.

The company has co-developed an electric dressing station with an Italian company, replacing mechanical drills and reducing mine emissions and operating costs. The company also plans to deploy solar power generation installations at two additional mine locations to further reduce emissions. They have also implemented an ERP system and sensor suite to monitor fuel utilization by machines at the mines, reducing overall operating costs.

The company has also improved the use of expanding chemical powder as a substitute for explosives, reducing dust pollution, safety risks, and compliance requirements associated with blast mining.

Future strategy

• The company plans to capitalize on the growing market for Black Galaxy Granite and Absolute Black Granite.
• They plan to expand their resource base by acquiring additional resources through strategic acquisitions.
• They plan to introduce exclusive natural stones like Laza Grey Marble and Celestia Quartzite on a B2B2C model.
• The company plans to enter the market for high purity Quartz, which requires further refinement of the products manufactured in Phase II. The company is also expanding into heavy mineral sand mining, exploring minerals like Rutile, Ilmenite, Zircon, Garnet, Sillimanite, and Monazite.
• The company aim to increase their operations in the Diamond Wire Segment and acquire a greater market share.
• They plan to expand their dealer network and widen their dealer network to provide sales and support services across the country.

Risk Factors of Midwest Limited:

Estimation of reserves

The DRHP includes natural stone reserve estimates based on engineering and geological interpretations using the 2012 Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. The accuracy of these estimates is a function of the quality of available data and engineering and geological interpretation.

The company's estimates of natural stone reserves could materially differ from the actual quantities recovered, impacting its future financial performance. If the reserve estimates differ materially from actual quantities or any assumptions used to estimate the reserves are found to be incorrect, the estimates of Mine Life may prove inaccurate, and market price fluctuations and changes in operating and capital costs may render certain reserves uneconomical to mine.

Promoter dispute with BEML limited

The Company and BEML entered into a shareholders partnership agreement in 2005 to establish a joint venture company, BEML Midwest. That time, BEML held 45% of the equity and the Midwest held 55% share. In 2007, BEML Midwest was incorporated and the Chairman and MD of BEML was appointed. However, disputes arose over the company's operations. BEML filed a petition before the Company Law Board, Chennai in 2008 alleging mismanagement and a theft of ₹110.00 million through Reliance Granite Private Limited. BEML has also filed a criminal complaint against Mr. Kollareddy Rama Raghava Reddy, alleging forgery, cheating, and misappropriation of funds.

In 2009, the Company filed a petition before the CLB alleging that the BEML CMD and other nominees were dominating the administration of BEML Midwest and diverting revenue from BEML Midwest while incurring costs. The CBI received a notice in 2015, but no further communications have been received. The MCA Investigators filed an Investigation Report in May 2022, finding that the mismanagement of BEML Midwest was carried out by the BEML CMD and other nominee directors. The Investigators recommended disgorgement of the misutilized amount and taking action under Sections 241(3) and 242 of the Companies Act, 2013. The Company and BEML have contested the findings. BEML Midwest is currently undergoing liquidation proceedings.

Revenue concentration

The company relies heavily on key customers for a significant portion of its revenue, which raises the risk of customer concentration. These contracts typically have tenure of two to three years, and can be terminated without prior notice or compensation. Failure to retain these customers on commercially reasonable terms, significant business reduction, or adverse changes in the financial condition of these key customers could materially and adversely affect the company's overall fundamental and financial performance.

The table below shows the revenue from the top 10 customers, based on their contribution to the company's revenue.

Any disruption in china housing market or slowdown in demand of company’s product could lead to adverse effect on company financials.

Revenue from exports

The company has historically derived a significant portion of its revenue from exports and that portion has been constatly increasing year on year. Over 50% of its revenue was derived from customers in China, a significant source of raw material for the Granite industry. Any disruption in relation between two nations or changes in the legal and regulatory environment, export or import laws or economic disruptions, or sanctions could adversely affect the company's distribution activities.

Revenue from Black Galaxy Granite

The company heavily relies on revenue from the sale of Black Galaxy Granite, which has not experienced a significant decline in sales in past three fiscals. However, a significant shift in demand could negatively impact the company's financial condition, cash flows, and operational results. The company extracts Black Galaxy Granite from three mines in Chimakurthy, Andhra Pradesh, and any disruptions due to environmental or political disturbances could significantly impact cash flows and financial condition.

Business subject to regulations

The exploration, mining, and processing of natural stones in India are subject to significant government regulation, requiring various permits and approvals. These rights are granted for specified periods and not in perpetuity. Operationalizing mines requires obtaining and maintaining leasehold rights, obtaining approval of a mining plan, and environmental clearances. Applying for new mining licenses, entering into mining leases, or extending existing licenses is time-consuming and requires the review and approval of several government authorities.

The mining industry is under increasing scrutiny from governments and civil society due to the significant impact of mining activities on the environment. In July 2024, the Supreme Court of India overruled a past judgment, holding that State Governments in India have the right to impose tax on minerals. Litigation by third parties to mining leases granted to the company can also adversely affect its operations and financial conditions.

Hindrances to expansion

The company plans to expand its business by focusing on the extraction and processing of quartz and mining of heavy mineral sands. The company aims to cater to the market for engineered stone and produce quartz for solar glass manufacturing. They have obtained mining licenses in Sri Lanka for extraction of ores like Ilmenite, Rutile, Garnet, and Zircon. However, the company lacks prior experience in these sectors and may face challenges in hiring, training.

The extraction and processing of quartz and heavy mineral sands are highly technical, and failure to sell products could negatively impact the company's financial condition, cash flows, and results of operations. The company is also introducing exclusive natural stones like Laza Grey Marble and Celestia Quartzite to compete with imported marble in India. The company has outsourced processing to a Rajasthan unit and plans to co-operate with a Turkish producer of high purity quartz.

Midwest Limited Grey Market premium

Grey market premium is the premium quoted over the IPO issue price. GMP shows that investors are ready to pay above the upper band of the IPO issue price. GMP is determined in the grey market as per the demand and supply of the shares in the primary market. A grey market is that unofficial ecosystem of unlisted companies' stocks that start trading even before the launch of the IPO to the date of its listing.

Also Read: What is Grey Market Premium in IPO: How is GMP Calculated & Reliable

However, GMP is not a reliable factor, as it keeps fluctuating as per the demand and supply of shares in the primary market. There are numerous factors that affect the stock market in India and individual stock prices of different companies that are already listed and trading in the secondary market. However, for an IPO-bounded company, you can consider the GMP as the speculative listing price of the share

According to various online sources, the Grey Market Premium or GMP of the Midwest Limited is trading around Rs XX in the grey market. It means shares are trading at the upper band issue price of Rs XX with a premium in the grey market and may list around the same price.