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Maharashtra Seamless: Lower taxes boost profits - Views on News from Equitymaster
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Maharashtra Seamless: Lower taxes boost profits
Feb 7, 2012

Maharashtra Seamless Ltd (MSL) has announced its results for the quarter ended December 2011. The company has reported a rise of 52% YoY in sales and 7% YoY in net profits for the quarter ended December 2011. Here is our analysis of the results.

Performance summary
  • The company's topline grows by 52% YoY during the quarter ended December 2011.
  • Both operating profits and operating margins declined by 1.7% YoY and 9.1% YoY respectively.
  • At the bottomline level, net profits for the quarter saw an increase of 7% YoY on account of lower taxes while net profit margins declined by 5.5% YoY.
  • For the nine months ended December 2011, net sales grew by 36.6% YoY and net profits declined by 8.7% YoY.


Financial performance snapshot
(Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
Sales 4065 6178 52.0% 12328 16835 36.6%
Expenditure 3021 5151 70.5% 9271 13656 47.3%
Operating profit (EBDITA) 1044 1027 -1.7% 3057 3179 4.0%
Operating profit margin (%) 25.7% 16.6%   24.8% 18.9%  
Other income 112 135 20.1% 565 309 -45.3%
Depreciation 34 47 38.9% 130 139 6.5%
Interest 10 21 120.6% 22 36 65.0%
Profit before tax 1113 1094 -1.8% 3470 3313 -4.5%
Tax 356 283 -20.5% 908 975 7.3%
Profit after tax/(loss) 757 810 7.0% 2562 2338 -8.7%
Net profit margin (%) 18.6% 13.1%   20.8% 13.9%  
No. of shares (m)         70.5  
Diluted earnings per share (Rs)         46.0  
P/E ratio (x)         7.7  
* On a trailing 12 months basis

What has driven performance in 3QFY12?
  • Maharashtra Seamless has registered a topline growth of 52% YoY during the quarter ended December 2011. The significant rise in the topline can be attributed to strong volume growth in the steel pipes and tubes segment. Revenue from steel pipes and tubes increased 52.1% YoY. High crude oil prices have led to an increase in E&P (Exploration & Production) activities, an important driver for demand of seamless pipes and tubes. However, revenues from the wind power segment saw a decline of 13.6% YoY.

    Break-up of operating costs
    (Rs m) 3QFY11 3QFY12 Change 9mFY11 9mFY12 Change
    Raw Materials 2326 4208 80.9% 7332 11039 50.6%
    % of sales 57.2% 68.1%   59.5% 65.6%  
    Employee costs 86 97 13.0% 221 258 17.0%
    % of sales 2.1% 1.6%   1.8% 1.5%  
    Manufacturing Expenses 518 722 39.4% 1511 2042 35.2%
    % of sales 12.7% 11.7%   12.3% 12.1%  
    Selling & Distribution Expenses 61 84 38.5% 135 215 59.5%
    % of sales 1.5% 1.4%   1.1% 1.3%  
    Other Expenditure 31 41 32.3% 73 102 39.6%
    % of sales 0.8% 0.7%   0.6% 0.6%  
    Total operating expenditure 3021 5151 70.5% 9271 13656 47.3%
    % of sales 74.3% 83.4%   75.2% 81.1%  

  • At the operating level, the company reported an increase in expenditure of 70.5% YoY. As a result operating margin declined by 9.1% YoY. It should be noted that the company did not seem to be in a position to pass on fully, the cost increases it has incurred due to higher raw material prices and higher selling and distribution expenses.

  • The company's net profit increased by 7% YoY. This was due to lower taxes. However interest expense increased significantly by 120.6%. Net profit margins continue to disappoint and saw a decline of 8.7% YoY.

What to expect?
The company has successfully commissioned a 5 megawatt (MW) solar power project in January 2012. The project is located at Pokaran district of Jaisalmer, Rajasthan. The project was allotted under Jawahar Lal National Solar Mission (JNNSM) by National Thermal Power Corporation (NTPC). The power plant will generate 9.855 m units of electricity annually. The geo-political tensions prevailing around the world, especially with Iran could increase oil prices further which could mean good news for the company.

At the current price of Rs 355, the stock trades at around 8 times its trailing twelve month earning. We maintain our positive view on the stock.

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