Topline in-line, margins disappoint… • Maharashtra Seamless :: ICICI Securities, PDF link

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Topline in-line, margins disappoint…
• Maharashtra Seamless reported a mixed set of Q2FY15 numbers.
EBITDA came in below our estimates while PAT came in above our
estimates
• The company reported a net income from operations of | 363.9 crore
for the quarter, up 35.3% QoQ and 28% YoY and broadly in line with
our estimate of | 372 crore
• EBITDA came in at | 26.9 crore (EBITDA margin of 7.4%) and was
below our estimate of | 34.2 crore (EBITDA margin of 9.2%)
• The consequent PAT came in at | 34.9 crore, up 55.3% QoQ and
73.2% YoY and higher than our estimate of | 29.1 crore. PAT came in
higher than our estimate on account of lower-than-expected
depreciation charge and effective tax rate
Safeguard duty on imported seamless pipes bodes well for company
Over the last couple of years, supplies of seamless pipes and tubes from
domestic manufacturers (like Maharashtra Seamless) to E&P and other
companies had been affected by dumping of steel pipes and tubes by
Chinese manufacturers. Hence, in August 2014, the Director General
(Safeguard) recommended that the Government of India impose a
safeguard duty on import of seamless pipe and tubes. Subsequently, the
central government imposed a safeguard duty on imported seamless
pipes and tubes, which is as follows:
• 20% duty ad valorem when imported during August 13, 2014 to
August 12, 2015
• 10% duty ad valorem when imported during August 13, 2015 to
August 12, 2016 and
• 5% duty ad valorem when imported during August 13, 2016 to
February 12, 2017
As Maharashtra Seamless is a major player in the domestic seamless pipe
segment it is likely to be a key beneficiary of the imposition of safeguard
duty on import of seamless pipe and tubes. This move is likely to aid
Maharashtra Seamless in augmenting its sales realisations in the
domestic market. Furthermore, the sales volume is also likely to witness
healthy traction, going forward.
Capacity utilisation levels to improve, going forward
Over the last couple of years, Maharashtra Seamless has been operating
at muted capacity utilisation levels. Dumping by Chinese players coupled
with a muted demand scenario has led to subdued utilisation for MSL.
However, going forward, we believe the imposition of the safeguard duty
will lead to a gradual improvement in utilisation levels in MSL’s seamless
pipes segment.
Imposition of safeguard duty to improve utilisation; maintain BUY…
Going forward, we expect an improvement in capacity utilisation and
realisation levels. We have maintained seamless sales volume of 217500
tonnes for FY15E and 275000 tonnes for FY16E. We have also maintained
ERW sales volume of 55000 tonnes for FY15E and 60000 tonnes for
FY16E. We have valued the company at 6x FY16E EV/EBITDA, thereby
arriving at a target price of | 430. We maintain our BUY recommendation
on the stock. Maharashtra Seamless has a strong balance sheet, healthy
cash flow and net cash status, which augurs well for the company.


LINK
http://content.icicidirect.com/mailimages/IDirect_MahaSeamless_Q2FY15.pdf