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�� Coating revenue jumps; consolidated pipe sales lower at ~80 KT
PSL’s Q3FY11 net consolidated revenue jumped 11.6% Q-o-Q to INR 7.7 bn, in
line with our estimate. Revenue from pipes dipped 38.7% Q-o-Q to ~INR 3.9 bn
due to lower sales volume of ~80 KT (-45% Q-o-Q), which dipped due to lower
order book. However, dip in sales volume was negated by higher coating
revenue of INR ~3.9 bn (+277% Q-o-Q). PSL’s consolidated order book as on
December 31, 2010, stands at INR ~18 bn (~370 KT) which includes the
recently won water pipeline order of USD 80 mn (90 KT) from Saudi Arabia for
its Sharjah facility. The US plant was lying idle for most of the quarter due to
lack of orders; the plant has started as management is accepting lower volume
orders for this facility as it waits for larger orders.
�� Higher coating revenue boosts EBITDA margin
EBITDA, at INR 942 mn (+72.4% Q-o-Q), was higher than our expectation of
INR 604 mn due to higher contribution (~50%) from coating revenue (higher
profit margin business). Blended consolidated pipeline EBITDA margin during the
quarter stood at USD 73/MT. Standalone EBITDA for Q3FY11 stood at 840 mn,
up 87% Q-o-Q, with EBITDA margin improving 236% Q-o-Q to USD 245/MT due
to higher coating revenue. Interest expenses stood at INR 384 mn (+3.3% Q-o-
Q). Other income dipped 74.4% Q-o-Q to INR 98 mn due to one-offs reported
during Q2FY11. PSL’s profitability on consolidated basis was boosted by strong
performance of PSL Corrosion (a subsidiary), leading to PAT of INR 158 mn, up
13.4% Q-o-Q and also above our expectation. On standalone basis, PSL reported
PAT of INR 204 mn.
�� Outlook and valuations: Positive on sector; maintain ‘BUY’
We are revising down PSL’s FY12E India production volumes from 375 KT to 350
KT due to lower order book for the Indian facility. We have maintained Sharjah
production volume at 75 KT and US production volume at 100 KT. With the
improvement in outlook on global pipeline capex, we expect orders to flow in for
the US facility. The above changes have led to downward revision in FY12 PAT
estimates by ~5%. We are also revising down our SOTP estimates by 9% to INR
146/share (INR 160/share earlier). We believe stock performance will be driven by
accretion of a larger and sustainable order book, especially at its USA facility, on
which we remain positive. At CMP of INR 78, the stock is trading at P/E of 5.0x
FY12E EPS and EV/EBITDA of 5.2x FY12E. We maintain our ‘BUY/Sector
Underperformer’ recommendation/ rating on the stock
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
�� Coating revenue jumps; consolidated pipe sales lower at ~80 KT
PSL’s Q3FY11 net consolidated revenue jumped 11.6% Q-o-Q to INR 7.7 bn, in
line with our estimate. Revenue from pipes dipped 38.7% Q-o-Q to ~INR 3.9 bn
due to lower sales volume of ~80 KT (-45% Q-o-Q), which dipped due to lower
order book. However, dip in sales volume was negated by higher coating
revenue of INR ~3.9 bn (+277% Q-o-Q). PSL’s consolidated order book as on
December 31, 2010, stands at INR ~18 bn (~370 KT) which includes the
recently won water pipeline order of USD 80 mn (90 KT) from Saudi Arabia for
its Sharjah facility. The US plant was lying idle for most of the quarter due to
lack of orders; the plant has started as management is accepting lower volume
orders for this facility as it waits for larger orders.
�� Higher coating revenue boosts EBITDA margin
EBITDA, at INR 942 mn (+72.4% Q-o-Q), was higher than our expectation of
INR 604 mn due to higher contribution (~50%) from coating revenue (higher
profit margin business). Blended consolidated pipeline EBITDA margin during the
quarter stood at USD 73/MT. Standalone EBITDA for Q3FY11 stood at 840 mn,
up 87% Q-o-Q, with EBITDA margin improving 236% Q-o-Q to USD 245/MT due
to higher coating revenue. Interest expenses stood at INR 384 mn (+3.3% Q-o-
Q). Other income dipped 74.4% Q-o-Q to INR 98 mn due to one-offs reported
during Q2FY11. PSL’s profitability on consolidated basis was boosted by strong
performance of PSL Corrosion (a subsidiary), leading to PAT of INR 158 mn, up
13.4% Q-o-Q and also above our expectation. On standalone basis, PSL reported
PAT of INR 204 mn.
�� Outlook and valuations: Positive on sector; maintain ‘BUY’
We are revising down PSL’s FY12E India production volumes from 375 KT to 350
KT due to lower order book for the Indian facility. We have maintained Sharjah
production volume at 75 KT and US production volume at 100 KT. With the
improvement in outlook on global pipeline capex, we expect orders to flow in for
the US facility. The above changes have led to downward revision in FY12 PAT
estimates by ~5%. We are also revising down our SOTP estimates by 9% to INR
146/share (INR 160/share earlier). We believe stock performance will be driven by
accretion of a larger and sustainable order book, especially at its USA facility, on
which we remain positive. At CMP of INR 78, the stock is trading at P/E of 5.0x
FY12E EPS and EV/EBITDA of 5.2x FY12E. We maintain our ‘BUY/Sector
Underperformer’ recommendation/ rating on the stock
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