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Maharashtra Seamless: Higher taxes curtail profits - Views on News from Equitymaster
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  • Feb 11, 2015 - Maharashtra Seamless: Higher taxes curtail profits

Maharashtra Seamless: Higher taxes curtail profits
Feb 11, 2015

Maharashtra Seamless has announced the third quarter results of financial year 2014-2015 (3QFY15). While the topline grew by 31.1% YoY bottomline grew at a faster pace of 66.9% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Net sales increase 31.1% YoY during 3QFY15.
  • Operating profits increase 151.4% YoY while margins almost double on a YoY basis.
  • Despite strong operating performance, net profits increase by 66.9% YoY due to an almost 4 fold rise in tax expenses. It may be noted that the tax provision of the quarter is based on the estimated computation for the full year and the difference, if any, will be adjusted in the last quarter.

Financial snapshot
(Rs m) 3QFY14  3QFY15  Change 9MFY14  9MFY15  Change
Total income  2,668 3,496 31.1% 8,785 9,826 11.8%
Expenditure  2,526 3,140 24.3% 8,055 9,052 12.4%
Operating profit (EBITDA) 142 356 151.4% 730 774 6.0%
Operating profit margin (%) 5.3% 10.2%   8.3% 7.9%  
Other income 191 181 -5.4% 410 602 47.0%
Interest 6 6 1.7% 14 24 76.1%
Depreciation 94 73 -22.1% 283 222 -21.6%
Profit before tax & exceptional items 233 458 96.5% 843 1,130 34.0%
Tax 23 108 365.8% 156 265 69.9%
Profit after tax/(loss) 210 350 66.9% 687 865 25.9%
Net profit margin (%) 7.9% 10.0%   7.8% 8.8%  
No. of shares (m)         67.0  
Basic & diluted earnings per share (Rs)         12.9  
P/E ratio (x) *         12.5  
* On trailing 12 month basis

What has driven performance in 3QFY15?
  • Sales increase 31.1% YoY. Apparently, low base (the entire last fiscal was troublesome) and strong volumes drove topline in 3QFY15. Revenues from the steel pipes & tubes increased 31.7% YoY.

  • Operating profits increased 151.4% YoY during the quarter due to strong topline growth. EBIT from the steel pipes & tubes segment increased 7 fold on YoY basis contributing to strong operating profit growth.

  • In line with strong operating performance, net profits increased 66.9% YoY partially offset by higher taxes.
What to expect?
At the current price of Rs 206, the stock trades at around 12.5 times its trailing twelve month earnings. We believe the near term scenario for seamless pipes is expected to be buoyant, given the government's renewed thrust on the power and infrastructure space. Also, the realizations are showing signs of improvement gradually. The order book of Rs 4-4.5 bn is also healthy considering the demand conditions that prevailed in the past. Based on these revival signs, we recommend investors to be patient and Hold on to the stock. However, we would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single midcap stock comprises more than 3% of your portfolio.

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