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Pipes
• Pipe manufacturers added orders worth Rs. 22.7bn during the quarter, adding to near term visibility. Primary
beneficiaries of these orders were Jindal Saw and Welspun Corp. We expect traction in order books to continue on back
of renewed strength in oil prices and improving global economic environment
• Orders from GAIL at 500,000 tonnes during FY11/YTD were however lower than industry estimates of 800,000 tonnes
• We expect Q3 top line to grow 11% qoq led by better execution. We expect stable margins, on levels similar to Q2. We
observe good traction in demand for seamless pipes from oil & gas and power sectors. We expect ONGC to announce
its annual order for seamless pipes during Q4FY11
• Amongst the key drivers of earnings growth, volumes continue to be the prime driver, though delays are inevitable.
Maharashtra Seamless volumes ramp up, earlier expected Q4FY2011, is now more likely from Q1FY12
Pipes – Top Pick
Jindal Saw
• We like JSAW for its diversified product mix across pipes and strong balance sheet. Jindal Saw shall ramp up its
capacities in the water pipe segment with the completion of current round of expansions, and position itself as a
major player. We expect water pipes to contribute 33% of its volume by FY13E thereby derisking the pipe business
from oil and gas sector
• The blended margins are expected to remain stable at about Rs. 10000 per tonne with higher share of profitability
from DI and seamless pipes
• We look forward to update on iron ore mines – our estimate suggest a potential EBIDTA accretion of Rs. 2.5bn per
annum on this account. Hence this remains a key trigger for re rating. The expected turnaround in Jindal ITF business
remains another long term potential earnings driver
• We expect core operating earnings growth of 20% over FY11‐12E to Rs 10.7bn on back of strong volume growth. We
maintain our Buy rating on the stock with a price target of Rs. 257 based on SOTP valuation
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