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Moderately bullish on overall outlook for pipes
Sounding moderately bullish on demand in the near term but expecting strong demand in coming years.
Expect line pipe demand to emerge largely from North America, Latin America and Middle East.
Optimistic on achieving higher utilisation rates from Middle East-based plant as they expect to get orders from Saudi
Aramco.
Expects plate mills to show improved utilisation rates from FY12 as they get more approvals from large international
consumers.
Valuation and risks
Given the cyclical nature of order inflows, we value the firm on PE. We believe the fundamentals of the firm deserve a
multiple of 9x and above, reflecting 17% average ROE and 10% growth. We value the firm on a PE of 8x on FY12e EPS
of INR30.7 to reflect higher cost of capital. This implies a target price of INR245.
The biggest concern of investors is corporate governance issues. SEBI has currently put an interim restraining order on
promoters, preventing them from trading in their own stocks. A final order from the regulator is awaited.
The sensitivity of our earnings estimates and target price depends on volume growth and margin trend. We estimate a 10%
increase in LSAW pipe volumes will increase net profit by 4%; a 10% increase in HSAW pipe volumes will increase net
profit by 7%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Moderately bullish on overall outlook for pipes
Sounding moderately bullish on demand in the near term but expecting strong demand in coming years.
Expect line pipe demand to emerge largely from North America, Latin America and Middle East.
Optimistic on achieving higher utilisation rates from Middle East-based plant as they expect to get orders from Saudi
Aramco.
Expects plate mills to show improved utilisation rates from FY12 as they get more approvals from large international
consumers.
Valuation and risks
Given the cyclical nature of order inflows, we value the firm on PE. We believe the fundamentals of the firm deserve a
multiple of 9x and above, reflecting 17% average ROE and 10% growth. We value the firm on a PE of 8x on FY12e EPS
of INR30.7 to reflect higher cost of capital. This implies a target price of INR245.
The biggest concern of investors is corporate governance issues. SEBI has currently put an interim restraining order on
promoters, preventing them from trading in their own stocks. A final order from the regulator is awaited.
The sensitivity of our earnings estimates and target price depends on volume growth and margin trend. We estimate a 10%
increase in LSAW pipe volumes will increase net profit by 4%; a 10% increase in HSAW pipe volumes will increase net
profit by 7%.
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