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Pipes
ƒ Stable performance expected
The overall topline of pipe companies under our coverage universe
is likely to remain flat YoY but may see a marginal improvement by
~8% sequentially mainly led by improved realisations aided by firm
steel prices. Improved realisations have arrested the decline on the
back of subdued volume growth due to lack of accretive addition in
the order book. EBITDA margins are likely to improve marginally
sequentially but may see a contraction, going ahead, due to a rise in
key raw material prices. Welspun Gujarat and Jindal SAW are
expected to report healthy QoQ profit growth on the back of
improved realisations due to higher prices and accretive order flow
in the last few quarters.
ƒ Order visibility remains a concern
The order backlog of major piping companies continued to lag
behind on account of lack of additions in the past few quarters from
the oil & gas industry. Demand from the Middle East is expected
from increased E&P activities in the region. Deep offshore activities
and rig count could improve demand from countries like North
America, Europe and Africa. Going ahead, city gas distribution
project, Iran pipeline project and the water sewage segment could
offer ample opportunities for domestic pipe manufacturers
Jindal Saw Q3FY11E results can surprise the Street on the higher side. We expect revenues,
EBITDA and PAT to grow ~ 30% sequentially mainly due to firm steel prices and
robust order book execution capability. However, margin contraction remains a
concern due to high raw material prices
Maharashtra
Seamless
No major surprise is expected in Q3FY11E. The overall performance is likely to
remain steady. Margins are likely to remain steady but, going forward, we may see
a margin contraction due to high raw material prices
Man
Industries
We expect a marginal dip in sales volumes of welded pipes to result in revenue degrowth by ~8% QoQ. However, EBITDA margins will continue to expand partially
due to firm realisations arresting the decline due to rising raw material cost
pressures
PSL Ltd. After a poor performance in Q2 we expect revenues to grow ~ 16% QoQ partially
due to firm steel prices taking care of otherwise subdued growth in volumes. Order
book execution and margin pressures due to domestic order booking may impact the
operational performance, going forward
Welspun
Gujarat
Welspun's performance is expected to remain subdued despite firm realisations due
to raw material cost pressures. Also, we expect the order flow from the US to dry up
due to lack of renewed rig activity. Also, corporate governance issues can act as a
key laggard to secure orders in FY12
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