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Maharashtra Seamless: Volumes jump - Views on News from Equitymaster
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Maharashtra Seamless: Volumes jump
Jun 18, 2015

Maharashtra Seamless has announced the fourth quarter results of financial year 2014-2015 (4QFY15). While the topline grew by 11.7% YoY bottomline grew at a slower pace of 6.2% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Net sales increase 11.7% YoY during 4QFY15.
  • Operating profits increase 64.4% YoY with margins expanding by 220 bps YoY during the quarter.
  • Despite strong operating performance, net profits increase by 6.2% YoY due to substantial rise in tax expenses. As against a tax credit of Rs 13 m in 4QFY14 the company was subject to taxes that resulted in an outgo to the tune of Rs 165 m during the quarter.
  • Total order book as of FY15 stands at Rs 2.5 bn.
  • The board of directors approved a dividend of Rs 5 per share for the fiscal under consideration.
  • The consolidated D/E ratio of the company stood at 0.26x at the end of FY15.

Standalone Financial Snapshot
(Rs m)  4QFY14   4QFY15  Change  FY14   FY15  Change
Total income  3,267 3,647 11.7% 12,058 13,552 12.4%
Expenditure  3,118 3,403 9.1% 11,179 12,455 11.4%
Operating profit (EBITDA) 149 244 64.4% 878 1,097 24.8%
Operating profit margin (%) 4.5% 6.7%   7.3% 8.1%  
Other income 222 305 37.0% 632 828 31.0%
Interest 14 12 -13.3% 27 36 31.9%
Depreciation 87 71 -18.5% 370 292 -20.9%
Profit before tax & exceptional items 271 466 72.3% 1,114 1,596 43.3%
Tax (13) 165 NM 143 371 160.1%
Profit after tax/(loss) 284 301 6.2% 971 1,226 26.2%
Net profit margin (%) 8.7% 8.3%   8.1% 9.0%  
No. of shares (m)         67.0  
Basic & diluted earnings per share (Rs)         18.3  
P/E ratio (x) *         10.4  
* On trailing 12 month basis

What has driven performance in 4QFY15
  • Sales increase 11.7% YoY. The sales volumes for seamless and ERW pipes were 44,477 MT and 18,342 MT during the quarter. For the full year volume of seamless pipes and ERW pipes increased by 13.0% YoY to 172, 479 MT and 7.7% YoY to 57,272 MT respectively. The realization of seamless pipes and ERW pipes increased by 8.6% YoY and 4.1% YoY to Rs 61,108 per MT and 42,683 per MT respectively during the quarter.

  • Operating profits increased 64.4% YoY during the quarter due to strong topline growth. While the EBITDA for the seamless pipes increased 92% YoY to Rs 4,891 per ton the same for the ERW pipes declined 57.6% YoY to Rs 191 per ton.

  • Despite strong operating performance, net profits increased by just 6.2% YoY due to higher taxes.
What to expect?

At the current price of Rs 190, the stock trades at around 10.4x and 0.45x its TTM earnings and TTM book value respectively. With the imposition of safeguard duty in August 2014 it was expected that the performance of Maharashtra Seamless will improve by the fiscal year end. While volumes and realizations have indeed improved since then, curtailment in capex by the oil & gas majors poses a risk to growth. It may be noted that seamless pipes find application in oil & gas industry but with crude prices correcting oil majors are delaying investments in the exploration and production (E&P) space. Thus, while imposition of duty may have helped improve volumes; the overall demand scenario for seamless pipes is not that great.

Nonetheless, as per management, the demand from power sector is showing signs of improvement. In addition, planned expansion of refineries at Chennai and Rajasthan (new refinery) is expected to give a boost to demand for steel pipes & tubes. In addition, the government is also planning pan India pipe line connectivity for gas. Based on these factors which indicate revival, 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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