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Maharashtra Seamless: Op. margins double - Views on News from Equitymaster
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Maharashtra Seamless: Op. margins double
Feb 5, 2010

Performance summary
  • Topline declines by 35.8% YoY during the quarter, on account of lower realisations.
  • Operating expenses decline by 46.3% YoY, higher than the topline, thus enabling EBITDA margins to expand by a dazzling 14.1% YoY to 27.3% in 3QFY10.
  • Bottomline grows by 12.6% YoY, lower than operating profits on account of lower other income.
  • Half yearly net profits grew by 10.8% YoY, despite 20.6% YoY decline in the topline.


(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 5,775 3,706 -35.8% 15,162 12,031 -20.6%
Expenditure 5,010 2,692 -46.3% 12,833 8,959 -30.2%
Operating profit (EBDITA) 765 1,013 32.4% 2,328 3,073 32.0%
EBDITA margin (%) 13.2% 27.3%   15.4% 25.5%  
Other income 255 124 -51.5% 691 240 -65.2%
Interest (net) 45 7 -83.8% 104 26 -75.0%
Depreciation 45 48 7.1% 136 141 3.7%
Profit before tax 931 1,082 16.2% 2,780 3,146 13.2%
Extraordinary items - -   - -  
Tax 290 360 24.1% 897 1,061 18.2%
Profit after tax/(loss) 641 722 12.6% 1,883 2,086 10.8%
Net profit margin (%) 11.1% 19.5%   12.4% 17.3%  
No. of shares (m)       70.5 70.5  
Diluted earnings per share (Rs)*         39.7  
Price to earnings ratio (x)**         9.0  
(* annualised, ** on trailing twelve months earnings)

What has driven performance in 3QFY10?
  • The topline declined by 35.8% YoY mainly on account of lower realizations during the quarter. Revenues from steel pipes and tubes division declined by around 36.7% YoY presumably due to the big fall in raw material costs, which were passed on to customers in the form of lower prices. The order book of the company stood Rs 5.5 bn at the end of quarter.

  • Operating profits grew by 32.4% YoY mainly on account of reduced operating expenses. Operating expenses declined by 46.3% YoY backed by substantially lower raw materials costs, as also lower manufacturing and other expenditure (as % sales) during the quarter as compared to corresponding period last year. Operating margins grew from 13.2% in 3QFY09 to 27.3% in 3QFY10.

    Segmental breakup
    (Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
    Steel pipes & tubes            
    Revenues 5,874 3,718 -36.7% 15,376 12,019 -21.8%
    PBIT margins 14.5% 26.9%   16.2% 24.9%  
    Wind power            
    Revenues 7 8 13.0% 44 40 -8.2%
    PBIT margins 20.3% 30.8%   62.0% 53.3%  
    Others            
    Revenues 149 103 -30.8% 433 212 -51.0%

  • The bottomline of the company grew by 12.4% YoY mainly on account of higher operating margins and a drastically reduced interest outgo. However, a significant fall in other income constrained the bottomline growth to a large extent, if not for which the bottomline growth would have been much higher.

What to expect?
At the current price of Rs 357, the stock is trading at a multiple of 6.8times our expected FY12 earnings estimates for the company. Although the topline growth of the company had been lower as compared to our estimates, the bottomline growth has come in slightly higher than our projections on the back of higher than expected expansion in margins. We continue to remain positive on the stock.

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