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Results better than estimates; pipes sales volume at 178 KT
Jindal Saw’s (JSAW) Q3FY11 net revenue of INR 10.6 bn (down 22.4% Y-o-Y, up
32.8% Q-o-Q) was higher than estimated INR 9.8 bn due to higher–thanexpected
pipes sales volume. Overall pipe sales, at 178.1 KT (estimated 173
KT), jumped 32.0% Q-o-Q due to delays in dispatches in Q2FY11, but dipped
29.0% Y-o-Y due to impact of lower order book during H1FY11. Similarly,
reported EBITDA, at INR 2.19 bn, dipped 24.9% Y-o-Y, but rose 18.8% Q-o-Q.
PAT also slipped 26.5% Y-o-Y, but was higher 22.4% Q-o-Q to INR 1.25 bn
(estimated INR 1.1 bn). Seamless tube sales dipped 17% Q-o-Q at 24,100 MT
due to shut down of plant for maintenance for 20 days.
Order book at USD 1.02 bn highest since Q3CY08
The company’s order book improved to USD 1.02 bn or 815 KT compared to USD
780 mn as at Q2FY11 end (675 KT). This ensures JSAW’s revenue/volume
visibility for the next 9-12 months. ~64% of these are export orders, largely
from the Middle East, Myanmar, and Australia. Order book includes 400 KT of
LSAW, 200 KT of HSAW, 190 KT of DI, and 25 KT of seamless pipes.
Blended EBITDA higher than estimate at INR 12,308/mt (USD 275/mt)
Blended EBITDA margin, at USD 275/MT (INR 12,308/MT), was higher than
estimated USD 260/MT and improved 10.0% Y-o-Y, but dipped 6.8% Q-o-Q.
Going forward, management expects FY11E and H1FY12E blended EBITDA
margins at INR 12,500/MT. Margins are expected to increase Q3FY12 onwards
after iron ore mines begin operations.
Outlook and valuations: Multiple triggers remain; maintain ‘BUY’
JSAW’s Q3FY11 results were higher than estimated on higher SAW pipes sales
volume. Management’s guidance of higher FY12 volumes at 1.1-1.2 mmt
compared to ~800 KT for FY11 indicates improvement in industry outlook. In
addition, we remain positive on JSAW due to multiple triggers: (a) higher volume
from DI pipes (capacity expansion); (b) increase in earnings from iron ore
mines; (c) break-even of Jindal ITF; and (d) demerger of investment
undertaking. Our March 2012 SOTP, at INR 291/share, offers 39% upsides from
the current level. We maintain our ‘BUY/Sector Outperformer’
recommendation/rating on the stock. At CMP of INR 210 JSAW trades at 9.7x
and 6.0x consolidated FY12E P/E and EV/EBITDA, respectively.
Other highlights
• Finance charges include INR 180 mn of foreign exchange losses. MTM losses on
account of derivative contracts currently stand at USD 135 mn against USD 132 mn
in Q2FY11. Losses increased due to JPY appreciation.
• Capacity expansion plans for DI (both domestic and UAE projects) are on track and
expected to commence production from September 2011. Management also expects
to start its iron ore mine by September 2011.
• Blended realisation improved 13.7% Y-o-Y (higher steel prices) and 4.3% Q-o-Q due
to lower HSAW sales.
• Conversion expenses eased 9.3% Q-o-Q to USD 257/MT.
• Gross debt as at December 31, 2010, in standalone books at INR 7,550 mn. Cash
balance was INR 800 mn.
• Management has guided to INR 12 bn in revenues and INR 2.6 bn EBITDA for Jindal
ITF for FY11. Debt in books of Jindal ITF at INR 4,000 mn.
Broadly maintaining FY11E and FY12E numbers
Company Description
Incorporated in 1984, JSL (erstwhile Saw Pipes) is one of the largest manufacturers of
pipes in India. Its business operations are structured into SBUs - (1) large diameter
pipes (LSAW and HSAW), (2) seamless tubes, and (3) ductile iron (DI) pipes. Its
manufacturing facilities are located at three places—Kosi Kalan in UP for the manufacture
SAW pipes, Nashik in Maharashtra for seamless pipes, and two manufacturing bases in
Mundra in Gujarat. JSL’s total capacity is expected at ~2 mn MTPA by CY10 and 2.2 mn
MTPA, after its newly announced ductile iron capacity comes on-stream in two years.
Investment Theme
JSL is the most diversified player in the Indian pipe segment, catering to oil & gas
transportation and exploration, water transportation, and sewerage systems. Thus, the
company offers its investors opportunity to invest in a range of low-risk business models
as against its peers that are mostly focused on a single segment. In addition, the
company has received accreditations from various oil and gas majors in the US, Middle
East, and South East Asia.
Key Risks
• Delay in capacity expansion.
• Fall in pipe margins in the US may be risky to players supplying to the US market.
• Raw material (like steel, coal, iron ore) price volatility leading to volatile EBITDA
margin.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Results better than estimates; pipes sales volume at 178 KT
Jindal Saw’s (JSAW) Q3FY11 net revenue of INR 10.6 bn (down 22.4% Y-o-Y, up
32.8% Q-o-Q) was higher than estimated INR 9.8 bn due to higher–thanexpected
pipes sales volume. Overall pipe sales, at 178.1 KT (estimated 173
KT), jumped 32.0% Q-o-Q due to delays in dispatches in Q2FY11, but dipped
29.0% Y-o-Y due to impact of lower order book during H1FY11. Similarly,
reported EBITDA, at INR 2.19 bn, dipped 24.9% Y-o-Y, but rose 18.8% Q-o-Q.
PAT also slipped 26.5% Y-o-Y, but was higher 22.4% Q-o-Q to INR 1.25 bn
(estimated INR 1.1 bn). Seamless tube sales dipped 17% Q-o-Q at 24,100 MT
due to shut down of plant for maintenance for 20 days.
Order book at USD 1.02 bn highest since Q3CY08
The company’s order book improved to USD 1.02 bn or 815 KT compared to USD
780 mn as at Q2FY11 end (675 KT). This ensures JSAW’s revenue/volume
visibility for the next 9-12 months. ~64% of these are export orders, largely
from the Middle East, Myanmar, and Australia. Order book includes 400 KT of
LSAW, 200 KT of HSAW, 190 KT of DI, and 25 KT of seamless pipes.
Blended EBITDA higher than estimate at INR 12,308/mt (USD 275/mt)
Blended EBITDA margin, at USD 275/MT (INR 12,308/MT), was higher than
estimated USD 260/MT and improved 10.0% Y-o-Y, but dipped 6.8% Q-o-Q.
Going forward, management expects FY11E and H1FY12E blended EBITDA
margins at INR 12,500/MT. Margins are expected to increase Q3FY12 onwards
after iron ore mines begin operations.
Outlook and valuations: Multiple triggers remain; maintain ‘BUY’
JSAW’s Q3FY11 results were higher than estimated on higher SAW pipes sales
volume. Management’s guidance of higher FY12 volumes at 1.1-1.2 mmt
compared to ~800 KT for FY11 indicates improvement in industry outlook. In
addition, we remain positive on JSAW due to multiple triggers: (a) higher volume
from DI pipes (capacity expansion); (b) increase in earnings from iron ore
mines; (c) break-even of Jindal ITF; and (d) demerger of investment
undertaking. Our March 2012 SOTP, at INR 291/share, offers 39% upsides from
the current level. We maintain our ‘BUY/Sector Outperformer’
recommendation/rating on the stock. At CMP of INR 210 JSAW trades at 9.7x
and 6.0x consolidated FY12E P/E and EV/EBITDA, respectively.
Other highlights
• Finance charges include INR 180 mn of foreign exchange losses. MTM losses on
account of derivative contracts currently stand at USD 135 mn against USD 132 mn
in Q2FY11. Losses increased due to JPY appreciation.
• Capacity expansion plans for DI (both domestic and UAE projects) are on track and
expected to commence production from September 2011. Management also expects
to start its iron ore mine by September 2011.
• Blended realisation improved 13.7% Y-o-Y (higher steel prices) and 4.3% Q-o-Q due
to lower HSAW sales.
• Conversion expenses eased 9.3% Q-o-Q to USD 257/MT.
• Gross debt as at December 31, 2010, in standalone books at INR 7,550 mn. Cash
balance was INR 800 mn.
• Management has guided to INR 12 bn in revenues and INR 2.6 bn EBITDA for Jindal
ITF for FY11. Debt in books of Jindal ITF at INR 4,000 mn.
Broadly maintaining FY11E and FY12E numbers
Company Description
Incorporated in 1984, JSL (erstwhile Saw Pipes) is one of the largest manufacturers of
pipes in India. Its business operations are structured into SBUs - (1) large diameter
pipes (LSAW and HSAW), (2) seamless tubes, and (3) ductile iron (DI) pipes. Its
manufacturing facilities are located at three places—Kosi Kalan in UP for the manufacture
SAW pipes, Nashik in Maharashtra for seamless pipes, and two manufacturing bases in
Mundra in Gujarat. JSL’s total capacity is expected at ~2 mn MTPA by CY10 and 2.2 mn
MTPA, after its newly announced ductile iron capacity comes on-stream in two years.
Investment Theme
JSL is the most diversified player in the Indian pipe segment, catering to oil & gas
transportation and exploration, water transportation, and sewerage systems. Thus, the
company offers its investors opportunity to invest in a range of low-risk business models
as against its peers that are mostly focused on a single segment. In addition, the
company has received accreditations from various oil and gas majors in the US, Middle
East, and South East Asia.
Key Risks
• Delay in capacity expansion.
• Fall in pipe margins in the US may be risky to players supplying to the US market.
• Raw material (like steel, coal, iron ore) price volatility leading to volatile EBITDA
margin.
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