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Maharashtra Seamless - Seamless execution expected ahead…
Maharashtra Seamless’ (MSL) Q3FY11 results came in line with our
estimates. The topline remained almost flat at | 406 crore (down ~4%
QoQ and up~ 9% YoY) against expected | 425 crore. Volume growth
in the ERW segment (up ~6% QoQ) and improved realisation (up~
74% QoQ) arrested a further decline on the revenue growth front due
to muted growth in the seamless segment (volumes down ~4% QoQ
and ~7% YoY). EBITDA margins improved ~120 bps QoQ partly due
to the lower inventory cost in the seamless pipes segment. However,
they fell ~270 bps YoY due to raw material cost pressures (up ~9%
YoY) and also partly due to the increase in manufacturing expenses
(up ~60% YoY). PAT also declined ~5% QoQ and remained flat YoY
(up~2%) led by a surge in interest cost and drop in other non
operating income (down ~21% QoQ). We have assigned an ADD
rating to the stock and maintained a target price of | 381 per share.
Volume growth remains muted
In the seamless segment, volume growth remained muted (down ~4%
QoQ and ~7% YoY) at ~61,086 tonnes in Q3FY11. The ERW segment
also saw a moderate rise in volumes (up ~6% QoQ). Though firm
realisations in both segments helped to arrest further declines in topline
growth, lack of accretive order flow will continue to impact the topline
led by muted volume growth.
Order book lacks accretion as desired
The outstanding order book for Q3FY11 stood at | 597 crore viz.
seamless segment adding | 458 crore and ERW segment | 139 crore,
thus lending visibility for the next few quarters. However, lack of
accretive order flow could continue to hurt volume growth.
Valuation
At the CMP of | 347, the stock is trading at 5.3x and 3.7x its FY11E and
FY12E EV/EBITDA, respectively. We maintain our ADD rating on the stock
with a target price of | 381 per share, valuing it at 4x FY12E EV/EBITDA.
ƒ Conference call highlights
The Romanian seamless pipe facility would likely be commissioned
during the second quarter of FY12. It would help the company to
add around 2,00,000 tonnes, thereby taking the total capacity of its
seamless segment to 5,50,000 tonnes. We expect it to contribute to
the operations by FY12E.
Rising raw material prices and firm steel prices have prompted the
management to start building up the raw material inventory from
Q2FY11 onwards. The management expects the rising steel price
trend to continue for some time. Inventory level for this quarter
stands at ~34,000 tonnes for billets and ~ 35,000 tonnes for coils.
The company plans to incur a capex of ~ | 50 crore by FY11 based
on the shifting of Romanian plant facility and | 50 crore by FY12.
The company expects the seamless segment to post EBITDA/tonne
at ~| 15,000/tonne for FY12E. Earlier, the company reported
EBITDA/tonne at ~ |18,000/tonne due to low cost inventory build-up
in the earlier quarters.
Allotment of the 5 MW solar power plant in Pokhran in Rajasthan is
under process. The company has signed a power purchase
agreement at ~ | 12.24/unit.
Valuation and future outlook
The rig count has been going up, thereby indicating good demand
coming from the oil & gas segment drilling and transportation segment.
Apart from that, the company has been receiving regular orders from the
boiler segment as well, thus lending good volume visibility over the next
few quarters in the seamless segment.
On the domestic front also, higher orders are expected from oil refining
companies. In view of increased rig counts and increased E&P activities,
the demand outlook in global market remains firm.
Global market demand for seamless pipes from the oil & gas industry
looks promising in the forthcoming quarters. Also, anti-dumping duty on
seamless pipes has been effected in the US and Europe against China.
This is expected to have a positive impact on seamless manufacturers like
MSL.
At the CMP of | 349, the stock is discounting its FY11E and FY12E
earnings by 6.9x and 5.4x, respectively. On an EV/EBITDA basis, it is
trading at 5.3x and 3.7x its FY11E and FY12E EV/EBITDA, respectively. We
have maintained our target price on the stock at | 381/share, by valuing
the stock at 4x FY12E EV/EBITDA. We have assigned an ADD rating to the
stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Maharashtra Seamless - Seamless execution expected ahead…
Maharashtra Seamless’ (MSL) Q3FY11 results came in line with our
estimates. The topline remained almost flat at | 406 crore (down ~4%
QoQ and up~ 9% YoY) against expected | 425 crore. Volume growth
in the ERW segment (up ~6% QoQ) and improved realisation (up~
74% QoQ) arrested a further decline on the revenue growth front due
to muted growth in the seamless segment (volumes down ~4% QoQ
and ~7% YoY). EBITDA margins improved ~120 bps QoQ partly due
to the lower inventory cost in the seamless pipes segment. However,
they fell ~270 bps YoY due to raw material cost pressures (up ~9%
YoY) and also partly due to the increase in manufacturing expenses
(up ~60% YoY). PAT also declined ~5% QoQ and remained flat YoY
(up~2%) led by a surge in interest cost and drop in other non
operating income (down ~21% QoQ). We have assigned an ADD
rating to the stock and maintained a target price of | 381 per share.
Volume growth remains muted
In the seamless segment, volume growth remained muted (down ~4%
QoQ and ~7% YoY) at ~61,086 tonnes in Q3FY11. The ERW segment
also saw a moderate rise in volumes (up ~6% QoQ). Though firm
realisations in both segments helped to arrest further declines in topline
growth, lack of accretive order flow will continue to impact the topline
led by muted volume growth.
Order book lacks accretion as desired
The outstanding order book for Q3FY11 stood at | 597 crore viz.
seamless segment adding | 458 crore and ERW segment | 139 crore,
thus lending visibility for the next few quarters. However, lack of
accretive order flow could continue to hurt volume growth.
Valuation
At the CMP of | 347, the stock is trading at 5.3x and 3.7x its FY11E and
FY12E EV/EBITDA, respectively. We maintain our ADD rating on the stock
with a target price of | 381 per share, valuing it at 4x FY12E EV/EBITDA.
ƒ Conference call highlights
The Romanian seamless pipe facility would likely be commissioned
during the second quarter of FY12. It would help the company to
add around 2,00,000 tonnes, thereby taking the total capacity of its
seamless segment to 5,50,000 tonnes. We expect it to contribute to
the operations by FY12E.
Rising raw material prices and firm steel prices have prompted the
management to start building up the raw material inventory from
Q2FY11 onwards. The management expects the rising steel price
trend to continue for some time. Inventory level for this quarter
stands at ~34,000 tonnes for billets and ~ 35,000 tonnes for coils.
The company plans to incur a capex of ~ | 50 crore by FY11 based
on the shifting of Romanian plant facility and | 50 crore by FY12.
The company expects the seamless segment to post EBITDA/tonne
at ~| 15,000/tonne for FY12E. Earlier, the company reported
EBITDA/tonne at ~ |18,000/tonne due to low cost inventory build-up
in the earlier quarters.
Allotment of the 5 MW solar power plant in Pokhran in Rajasthan is
under process. The company has signed a power purchase
agreement at ~ | 12.24/unit.
Valuation and future outlook
The rig count has been going up, thereby indicating good demand
coming from the oil & gas segment drilling and transportation segment.
Apart from that, the company has been receiving regular orders from the
boiler segment as well, thus lending good volume visibility over the next
few quarters in the seamless segment.
On the domestic front also, higher orders are expected from oil refining
companies. In view of increased rig counts and increased E&P activities,
the demand outlook in global market remains firm.
Global market demand for seamless pipes from the oil & gas industry
looks promising in the forthcoming quarters. Also, anti-dumping duty on
seamless pipes has been effected in the US and Europe against China.
This is expected to have a positive impact on seamless manufacturers like
MSL.
At the CMP of | 349, the stock is discounting its FY11E and FY12E
earnings by 6.9x and 5.4x, respectively. On an EV/EBITDA basis, it is
trading at 5.3x and 3.7x its FY11E and FY12E EV/EBITDA, respectively. We
have maintained our target price on the stock at | 381/share, by valuing
the stock at 4x FY12E EV/EBITDA. We have assigned an ADD rating to the
stock.
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