Query: I want to know about the MIDWEST LTD before subscribing to its IPO. Could you detail the company’s business nature for me.
Secondly, how solid are their finances? In terms of financial health, is this a good company or not?
How has been its revenue, profitability, balance sheet strength? I also want to know if the company is efficient in converting its report net profit into cash?
Tell me what are the plans of the company to deploy Fresh Issue funds for growth? Also, if possible, may I ask you to estimate a justified intrinsic value of this company?
Answer
You must have heard about this recent IPO for a company called MIDWEST LIMITED. For me, this is an interesting company.
I looked for it to understand what this company does, how strong are its finances, and what the risks might be if I decide to subscribe. I have tried to dig into the the company’s Red Herring Prospectus (RHP) – the IPO document, and extracted the details.
I hope you will find it useful.
1: What Exactly Does MIDWEST LTD Do?
MIDWEST LTD is a company that specializes in digging up, cutting, polishing, and selling beautiful, high-quality natural stones (black granite).
You can imagine them as experts in mining and processing decorative stones. These special stones are used globally in construction and design.
The company has a strong legacy stretching back over four decades in the natural stone industry.
Their business can be largely divided into two main areas, with an eye toward future diversification:
1.1 The Natural Stone Segment (The Core Business)
This is where the real money comes from, contributing around 96% of the company’s revenue over the last three fiscal years (Fiscals 2023–2025).
- Granite Royalty: MIDWEST LTD business is focused on premium, sought-after varieties of granite. They are recognized as India’s largest producer and exporter of Black Galaxy Granite. This granite is particularly unique because it is found only in one specific village in Andhra Pradesh. This makes it highly valuable globally.
- The company also prides itself on being one of the largest producers of Absolute Black Granite in India. Their product is known for its elegant, uniform deep black colour, hardness, and durability.
- Their business involves the entire cycle: exploration, mining (getting the stone blocks out of the earth), processing (cutting and polishing), and finally, global distribution and export.
- A major chunk of their sales (about 63.66%) comes from international markets, with China serving as a key global distribution hub.
1.2 Diversification and Support Segments
To support its core business and expand its horizons, MIDWEST LTD is also active in two smaller segments:
- Diamond Wire Segment: To efficiently cut the extremely hard granite blocks, the company manufactures its own precision cutting tools called “Diamond Wire”. This segment began as a way to integrate their operations backward but now sells its products to the broader Indian mining and construction industry as well.
- The Future is Quartz: The company is making a major push into the Quartz segment. Quartz is a mineral used widely in building materials (like engineered stone) and industrial applications (like glass). This expansion is managed through its wholly-owned subsidiary, Midwest Neostone Private Limited (MNPL).
- The company has already completed Phase I of an advanced quartz processing plant and plans to use a substantial portion of the IPO proceeds to fund Phase II of this plant.
- They currently operate Quartz Mines in Andhra Pradesh, holding combined proved reserves of 2.1 million metric tonnes of Quartz.
MIDWEST LTD is big brand name in mining and exporting rare granite. Now, they are rapidly tring to tap the growing Quartz market as well.
2: Financial Health Check of Midwest Ltd
Now let’s look at the financial performance of the company over the last three fiscal years (FY23, FY24, and FY25) and the recent three-month period ending June 30, 2025 (Q1 FY26).
2.1 Revenue and Growth
The company has demonstrated consistent growth in its top line (Revenue from Operations):
| Particulars | FY23 (Rs. million) | FY24 (Rs. million) | FY25 (Rs. million) |
| Revenue from Operations | 5,025.17 | 5,856.24 | 6,261.82 |
Revenue grew from Rs. 5,025.17 million in Fiscal 2023 to Rs. 6,261.82 million in Fiscal 2025. This growth in granite sales logged a CAGR of 12% between Fiscals 2023 and 2025.
For the three-month period ending June 30, 2025, the revenue was Rs. 1,422.65 million.
2.2 Profit and Profitability
I’ll measure the profitability using two key metrics: EBITDA Margin and Net Profit Margin.
The company has shown significant expansion in its margins across the years:
| Particulars | FY23 (%) | FY24 (%) | FY25 (%) | Q1 FY26 (%) |
| EBITDA Margin | 17.83 | 25.86 | 27.43 | 27.39 |
| Net Profit Margin | 10.83 | 17.13 | 17.17 | 17.14 |
| Profit After Tax (PAT) | 544.36 | 1,003.24 | 1,332.99 | 243.80 |
* Note: The FY25 PAT excluding an exceptional item was ₹1,075.11 million.
• EBITDA: This shows strong operational efficiency. The EBITDA margin improved significantly from 17.83% in FY23 to 27.43% in FY25.
• Net Profit: The PAT has nearly doubled from Rs. 544.36 million in FY23 to Rs. 1,332.99 million in FY25. Correspondingly, the Net Profit Margin also increased substantially from 10.83% in FY23 to 17.17% in FY25. This indicates that the company has become highly efficient at controlling costs and converting revenue into actual profit.
3: Strength of the Balance Sheet
A strong balance sheet means the company is built on a solid foundation and isn’t overburdened by debt.
3.1 Net Worth and Assets
The total value of the company’s assets and its Net Worth (what shareholders actually own) have both seen strong growth:
- Total Assets grew from Rs. 6,595.35 million in FY23 to Rs. 10,587.00 million in FY25. As of June 30, 2025, total assets stood at Rs. 10,828.09 million.
- Net Worth jumped from Rs. 3,349.24 million in FY23 to Rs. 5,536.91 million in FY25, and further to Rs. 5,770.32 million as of June 30, 2025.
3.2 Debt Management
A key ratio here is the Debt to Equity Ratio (D/E). This ratio tells us how much the company relies on debt versus shareholder funds.
| Particulars | FY23 (times) | FY24 (times) | FY25 (times) | Q1 FY26 (times) |
| Debt to Equity Ratio | 0.45 | 0.29 | 0.43 | 0.47 |
The Debt to Equity ratio has remained healthy, staying well below 0.5 times throughout the periods shown (0.47 times as of Q1 FY26). This suggests a modest reliance on borrowed capital.
The total borrowings stood at Rs. 2,701.10 million as of June 30, 2025.
The company intends to use a portion of the Fresh Issue proceeds (part of the IPO) for the pre-payment or re-payment of certain outstanding borrowings.
3.3 Liquidity (Current Ratio)
The Current Ratio measures the company’s ability to pay off its short-term debts. A ratio above 1.0 is generally considered good.
| Particulars | FY23 | FY24 | FY25 | Q1 FY26 |
| Current Ratio | 1.32 | 1.68 | 1.60 | 1.54 |
The current ratio has consistently remained above 1.0, reaching 1.54 times in the most recent period. This indicates good short-term financial stability.
4: Cash Flow Analysis
Cash flow is the lifeblood of any business.
While profit (PAT) is an accounting concept, cash flow shows the actual movement of money in and out of the business.
| Particulars | FY23 (Rs. million) | FY24 (Rs. million) | FY25 (Rs. million) | Q1 FY26 (Rs. million) |
| Cash Flow from Operations (CFO) | -519.46 | 1,279.07 | 873.14 | 284.08 |
| Profit After Tax (PAT) | 544.36 | 1,003.24 | 1,332.99 | 243.80 |
The company experienced negative cash flow from operating activities in FY23 (Rs. -519.46 million). However, this trend dramatically reversed in subsequent years, showing healthy positive operating cash flows in FY24 (Rs. 1,279.07 million) and FY25 (Rs. 873.14 million).
4.1 Cash Flow to Net Income Ratio (CFO/PAT)
This ratio checks how effectively the reported net income (PAT) is converted into real cash.
A ratio above 1 suggests high quality of earnings.
| Particulars | FY23 (Ratio) | FY24 (Ratio) | FY25 (Ratio) | Q1 FY26 (Ratio) |
| CFO / PAT | -0.95 | 1.27 | 0.65 | 1.16 |
In Fiscal 2024 and the most recent period (Q1 FY26), the ratio was above 1, indicating strong cash generation relative to net income.
In FY25, the ratio dipped slightly below 1 (0.65), suggesting that some reported earnings were tied up in non-cash items. I think, this dip was potentially related to working capital.
4.2 Cash Flow Yield
The Cash Flow Yield (CFY) is determined by dividing the company’s Cash Flow from Operations (CFO) by its implied Market Capitalization.
- Key Financial Data (FY25 Consolidated):
- Cash Flow from Operating Activities (CFO): Rs. 873.14 million.
- Equity Shares Outstanding (Pre-Offer): 33,812,415 Equity Shares.
- Implied Market Capitalization Range:
- At the Floor Price (Rs. 1,014): 33,812,415 shares × Rs. 1,014/share ≈ Rs. 34,286.08 million.
- At the Cap Price (Rs. 1,065): 33,812,415 shares × Rs. 1,065/share ≈ Rs. 35,990.22 million.
- Cash Flow Yield Range (CFO/Market Cap):
- At the Floor Price: 873.14 / 34,286.08 = 2.55%
- At the Cap Price: 873.14 / 35,990.22 = 2.43%
The implied Cash Flow Yield for MIDWEST LTD, using the Fiscal 2025 operating cash flow, ranges between 2.43% and 2.55%.
I’ll say, this cash flow yield is relatively low. But we must also note that the nature of this business is such that here the margins are not great.
This low yield suggests that the market is assigning a high valuation to MIDWEST LTD’s shares relative to the current cash flow generated by its operations.
Investors purchasing the IPO at the price band (Rs. 1,014 to Rs. 1,065) are primarily pricing in expectations of significant future growth and profitability. This growth is especially dependent on the successful execution of its planned capital-intensive Quartz segment expansion.
Had the valuation been based on the company’s current operational cash generation efficiency, it’s quantum would have been much lower.
6: Intrinsic Value Estimation – What is the company truly worth?
To answer this, we need to estimate the company’s intrinsic value using the DCF method.
Remember, this entire section will be built upon informed assumptions based on the company’s stated growth plans and financial history.
Please treat this calculation as an academic exercise built on hypothetical forecasts, not as investment advice.
The Key Assumptions We Are Making:
- Discount Rate (WACC): I’m using a Weighted Average Cost of Capital (WACC) of 8.0%.
- Growth Drivers: We assume MIDWEST LTD will successfully execute its strategy to move into the high-margin Quartz and Solar Glass segments (Phase II Quartz Processing Plant deployment is key).
- Terminal Growth Rate (g): We assume a conservative 3.0% long-term perpetual growth rate for the business after the explicit forecast period.
- Forecasting Free Cash Flow (FCF): FCF is calculated as Operating Cash Flow (CFO) minus Capital Expenditure (CapEx).
Step 1: Forecasting Free Cash Flow (FY26 to FY30)
We project the next five years, focusing on the heavy capital investments planned for Fiscals 2026 and 2027 (especially the Rs. 1,302.98 million for Phase II Quartz Plant and Rs. 257.55 million for Electric Dump Trucks).
| Metric (₹ in million) | FY25 (Actual) | FY26 (Estimated) | FY27 (Estimated) | FY28 (Estimated) | FY29 (Estimated) | FY30 (Estimated) |
| CFO (Operating Cash Flow) | 873.14 | 960.00 | 1,060.00 | 1,300.00 | 1,600.00 | 1,950.00 |
| CapEx (Informed Assumption) | 565.52 | 1,300.00 | 1,200.00 | 350.00 | 370.00 | 400.00 |
| Free Cash Flow (FCF) | 307.62 | (340.00) | (140.00) | 950.00 | 1,230.00 | 1,550.00 |
| Discount Factor (8% WACC) | – | 0.9259 | 0.8573 | 0.7938 | 0.7350 | 0.6806 |
| Discounted FCF | – | (314.81) | (120.03) | 754.15 | 904.09 | 1,054.94 |
Interpretation of Forecasts: The negative FCF in FY26 and FY27 reflects the heavy upfront investment needed for the Phase II Quartz plant, as the Net Proceeds from the IPO are deployed. This is normal for growth companies undergoing major expansion.
The cash flows become significantly positive from FY28 onwards as the new high-growth Quartz segment (catering to the solar glass industry, projected to see 30-31% CAGR in quartz demand by CRISIL) begins yielding substantial operational results.
Step 2: Calculating Terminal Value (TV)
Terminal value captures the value of the company beyond the explicit forecast period (FY30) assuming stable growth forever.
- 1. FCF for FY31 (Next year): Rs. 1,550 million * (1 + 3.0% growth) = Rs. 1,596.5 million.
- Terminal Value (at FY30): TV=FCFFY31/(WACC−g) TV=1,596.5/(0.08−0.03)=Rs. 31,930 million.
- Present Value of Terminal Value: PV(TV)=31,930/(1+0.08)5=Rs. 21,731.44 million.
Step 3: Determining Enterprise Value (EV)
The total Enterprise Value is the sum of all discounted FCFs (explicit period + terminal period).
EV = (−314.81) + (−120.03) + 754.15 + 904.09 + 1,054.94 + 21,731.44
EV = ~ Rs. 24,009.78 million
Step 4: Estimating Intrinsic Equity Value and Value Per Share
To get the Equity Value, we adjust the Enterprise Value for cash and debt.
| Particulars | Amount (Rs. in million) |
| Enterprise Value (EV) | 24,009.78 (Calculated above) |
| Add: Cash and Cash Equivalents (June 30, 2025) | 191.65 |
| Less: Total Borrowings (Debt) (June 30, 2025) | 2,701.10 |
| Intrinsic Equity Value | 21,500.33 |
To find the intrinsic value per share, we divide the Equity Value by the number of shares outstanding. The number of equity shares outstanding as of June 30, 2025, derived from the EPS calculation (PAT of ₹243.80 million / Basic EPS of ₹7.21), is approximately 33.812 million shares (or 3,38,12,000 shares).
Intrinsic Value Per Share = Rs. 21,500.33 million / 33.812 million shares
Intrinsic Value = ~ Rs. 635.87
Have a happy investing.
