Marshall Machines Ltd

Book Value: Rs. 31.80

CMP: Rs.22.95

Target: Rs.57/61.

Introduction: Marshall Machines Ltd, established in 1961, is a prominent player in the Indian machine tool industry, specializing in the development, manufacturing, and marketing of machine tool equipment, including single spindle, patented double, and four spindle CNC machines. Photo: Marshallcnc.com.

Investment Rationale:

💢Completed CAPEX and Enhanced Capacity: Between 2018 and 2021, the company executed significant capital expenditures, elevating its manufacturing capacity from Rs.75 crores in 2017 to ₹250 crores in sales. This expansion positions Marshall Machines to achieve EBITDA margins up to 25%. 

💢Innovation and Patents: The company has filed multiple patents globally and has been granted three patents in FY22, notably for the "System and a Method to Enable Zero Defect Production," underscoring its commitment to innovation and quality enhancement. 

💢Strategic Global Alliances: Marshall Machines is developing strategic partnerships with European and Japanese machine builders, aiming to import advanced machines for the Indian market and export its automated solutions internationally. 

💢Focus on Emerging Sectors: The company is tapping into opportunities in sectors such as electronics, aerospace, and medical equipment, diversifying its market presence and revenue streams. 

💢Deleveraging Efforts: There is a strategic focus on debt repayment through increased internal accruals and optimization of the working capital cycle, aiming to strengthen the financial health of the company.46 crore, compared to a net loss of ₹1.03 crore in the corresponding quarter of the previous year. The operating profit margin stood at -4.81%, indicating operational challenges.

Rights Issue: In October 2023, Marshall Machines initiated a rights issue, offering 1,01,85,000 equity shares at Rs.44.8 per share, aiming to raise approximately Rs.45.63 crores. The rights issue was offered in the ratio of 7:10, meaning seven new shares for every ten shares held. The funds raised are intended to support the company's growth initiatives and strengthen its financial position. This move has somewhat decreased the promoters' holding.

Technical Overview:  As of December 18, 2024, Marshall Machines Ltd is trading at Rs.23. The stock has recently been under the Enhanced Surveillance Measure (ESM) Stage II, which typically imposes trading restrictions to curb volatility. 

In ESM Stage II, stocks are often subjected to trade-for-trade settlement with a price band and may have trading permitted only once a week through periodic call auctions. The duration in this stage can vary, but scrips are generally retained for 5 to 15 days, depending on specific parameters.

Given the current trading restrictions and potential volatility, investors should exercise caution. It is advisable to monitor the stock's movement post-exit from ESM Stage II and consult with financial advisors to align this investment with individual risk tolerance and investment objectives.

This implies that it is highly likely that the scrip would come out of ASM Stage - 2. by next week. Moreover, there's no volume in the counter, which might push the surveillance mechanism of BSE/NSE to remove this hurdle.

Conclusion:

Marshall Machines Ltd presents a compelling investment opportunity, supported by its expanded manufacturing capacity, innovative product offerings, strategic global partnerships, and focus on emerging high-growth sectors. 

However, investors should remain cognizant of the current trading restrictions under ESM Stage II and perform due diligence, considering both the potential growth prospects and associated risks.