[T.S.R:11052] why shud u buy MAH SEAMLESS

Buy Maharashtra Seamless Ltd

INVESTMENT RATIONALE

Topline registers a growth of 20%:-

The sales of the company registered a growth of 20% y-o-y to Rs.444.4 crore however the sales have declined by19% q-o-q. Increase in sales is mainly due to increase in volumes by 6%y-o-y. the average sales price has also gone up by 38% y-o-y to Rs.66000/tonne for seamless and a decline of 25% y-o-y for ERW at Rs.31500/tonne.

Company has posted 10% growth in EBITDA y-o-y, it stood at Rs.104.4 crore. The net profit registered a growth of 8% y-o-y.

Largest seamless pipe manufacturer in India: –

Maharashtra Seamless, a part of the D.P Jindal Group, is the largest manufacturer of seamless pipes, used in oil production; boiler; power plant; automobile engineering etc. It also manufactures Electronic Resistance Welded (ERW) pipes primarily used in sewage pipes and water transportation. The company enjoys the usage of advanced technologies at each of its facilities through a technological tie-up with SMS Meer of Germany.

MSL has a ~50% share in domestic seamless pipe market and its major customers include ONGC, Oil India, BHEL, Thermax, BPCL, Bajaj Auto, Cheveron. Expanding seamless capacity; integrating into steel manufacturing:-
MSL has acquired a 200ktpa seamless pipe plant from Romania, which is being
relocated to India. It is expected to start production by Sep 2010 and will be fully
ramped-up by FY12. MSL is also starting work on setting up steel and billet making facility of 500ktpa entailing capex of Rs10bn. Limited availability of round billets used in seamless pipe production makes back-ward integration important to achieve higher capacity utilization. Additionally, it will improve margins and reduce working capital.

Backward Integration Project to enhance margins: - MSL is planning to implement a backward integration project to manufacture billets, the basic feed
material for seamless pipes making, having a capacity of 0.5 MTPA. However the management has not yet decided on the particular location for the project which it intends to do within a short span of time.

Key Developments

• The USA department of commerce has imposed anti dumping duty against Chinese suppliers. This is a positive news for the company as the size of business vacated due to imposition of anti dumping duty is very large.

• The company has Capex of Rs 300 crore for erection of Romania Plant.

• Currently the erection of that plant is under process & the facility is expected to commence commercial production by Dec'2010. This capex is expected to be funded from internal accruals.

• The company has order book of Rs.400 crore to be executed in next three months.

• The company is looking at backward integration into billets this will enhance margins. However the it will take atleast 3-4 years from now to set up the plant.

Valuations

At current price of Rs 323 the stock is trading at P/E of 8.6 x TTM EPS of Rs.36.55 and it is trading at TTM EV/EBITDA of 5.95x. We recommend a "BUY" on the stock with a 12 month target price of Rs.380.

 

 

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