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Mah. Seamless: Stellar margins save the day - Views on News from Equitymaster
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Mah. Seamless: Stellar margins save the day
May 5, 2010

Maharashtra Seamless has announced its FY10 results. The company has reported a 22% YoY decrease and a 9% YoY increase in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline declines by 22% YoY during FY10 on account of a fall in average realisations.
  • EBITDA margins expand from 16.8% in FY09 to 25.2% in FY10.
  • Other income falls by 28% YoY in FY10.
  • Profit after tax sees an increase of 9% YoY during FY10 despite the fall in topline due to the expansion in operating margins.


Standalone financial snapshot
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net sales 5,487 3,881 -29.3% 20,389 15,912 -22.0%
Expenditure 4,476 2,950 -34.1% 16,964 11,909 -29.8%
Operating profit (EBDITA) 1,011 931   3,424 4,003 16.9%
EBDITA margin (%) 18.4% 24.0%   16.8% 25.2%  
Other income 21 281 1262.1% 721 521 -27.8%
Depreciation 48 49 3.3% 179 190 5.9%
Interest 12 7   116 33  
Profit before tax 972 1,155   3,850 4,301 11.7%
Tax 326 404   1,251 1,465 17.1%
Profit after tax/(loss) 646 751 16.2% 2,599 2,836 9.1%
Net profit margin (%) 11.8% 19.3%   12.7% 17.8%  
No. of shares (m)       71 71  
Diluted earnings per share (Rs)         40.2  
Price to earnings ratio (x)         9.4  

What has driven performance in FY10?
  • The company’s topline declined by 22% YoY mainly on account of lower realisations during the year. Revenues from steel pipes and tubes division declined by around 22% YoY 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 4.1 bn at the end of FY10.

  • Operating profits grew by 17% YoY mainly on account of reduced operating expenses. Operating expenses declined by 30% YoY backed by substantially lower raw materials costs, as also lower sales and distribution expenses (as a percentage of sales) during the year as compared to corresponding period last year. Operating margins expanded from 16.8% in FY09 to 25.2% in FY10.

    Segmental break-up
    (Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
    Steel pipes & tubes            
    Revenues 5,488 4,036 -26.5% 20,593 16,055 -22.0%
    PBIT margins 0.18 0.27        
    Wind power            
    Revenues 8 17 120.8% 48 57 18.4%
    PBIT margins 0.23 0.59        
    Others            
    Revenues 12 109 845.2% 468 321 -31.5%

  • The bottomline of the company grew by 9% YoY mainly on account of higher operating margins as also 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 373 the stock is trading at a multiple of 7.1 times our expected FY12 earnings estimates for the company. As per the company's management, the demand outlook in the export market has improved significantly, especially in the US. Increased exploration and production activities, including in India, on account of the recovery in oil prices also bode well for the company. Domestic market conditions, especially from the boiler sector have also shown improvement.

Anti dumping of seamless pipes from China has been implemented in US and Europe which is having a positive impact on all non Chinese seamless pipe markers including Maharashtra Seamless. Going forward, the company intends to put up an intensive and aggressive marketing efforts to further penetrate the domestic and international markets to increase its market presence. We continue to remain positive on the stock.

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