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Mah Seamless: Quarterly profits surge - Views on News from Equitymaster
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Mah Seamless: Quarterly profits surge
Jul 7, 2014

Maharashtra Seamless Ltd (MSL) has announced its results for the quarter ended March 2014. The company has reported a decline of 0.6% YoY in sales while net profits increased by 74.9% YoY for the quarter ended March 2014. Here is our analysis of the results.

Performance summary
  • The company's topline declines by 0.6% YoY during the quarter ended March 2014.
  • Both operating profits and operating margins increase substantially on a YoY basis. While operating profits increase 11 fold, margins jump from 0.4% in 4QFY13 to 4.5% in 4QFY14.
  • At the bottomline level, net profits for the quarter increased 74.9% YoY.
  • The board of directors recommended a dividend of Rs 6 per share for the fiscal under consideration.
  • The consolidated D/E ratio of the company stood at 0.05x at the end of the year.

Standalone financial performance snapshot
(Rs m) 4QFY13 4QFY14 Change FY13 FY14 Change
Net sales 3,287 3,267 -0.6% 17,220 12,052 -30.0%
Expenditure 3,275 3,118 -4.8% 15,511 11,173 -28.0%
Operating profit (EBDITA) 12 149 1107.3% 1,709 878 -48.6%
Operating profit margin (%) 0.4% 4.5%   9.9% 7.3%  
Other income 270 222 -17.6% 695 632 -9.1%
Interest (net) 9 14 48.4% 61 27 -55.5%
Depreciation 93 87 -7.2% 365 370 1.1%
Profit before tax 180 271 50.6% 1,977 1,114 -43.7%
Tax 17 (13) NM 444 143 -67.9%
Profit after tax/(loss) 162 284 74.9% 1,533 971 -36.7%
Net profit margin (%) 4.9% 8.7%   8.9% 8.1%  
No. of shares (m)         68  
Diluted earnings per share (Rs)          14.2  
P/E ratio (x)*          23.3  
On a trailing 12 months basis

What has driven performance in 4QFY14?
  • Maharashtra Seamless has registered a topline decline of 0.6% YoY during the quarter ended March 2014. For the full year, sales were down 30% YoY due to weak demand and increasing competition.

    Break-up of operating costs
      4QFY13 4QFY14 Change FY13 FY14 Change
    Raw Materials 2,521 2,411 -4.4% 12,057 8,551 -29.1%
    % of sales 76.7% 73.8%   70.0% 71.0%  
    Employee cost 82 86 4.7% 437  398 -9.0%
    % of sales 2.5% 2.6%   2.5% 3.3%  
    Other Expenditure  672  621 -7.5%  3,018  2,225 -26.3%
    % of sales 20.4% 19.0%   17.5% 18.5%  
    Total operating expenditure 3,275 3,118 -4.8% 15,511 11,173 -28.0%
    % of sales 99.6% 95.5%   90.1% 92.7%  

  • At the operating level, the company reported a decline in expenditure of 4.8% YoY. On an absolute basis, both raw materials and other expenditure declined by 4.4% YoY and 7.5% YoY respectively. Fall in total expenditure on a YoY basis led to an 11 fold jump in operating profits. The company's net profit increased by 74.9% YoY. Fall in depreciation and tax expenses boosted net profits. Other income for the quarter declined by 17.6% YoY.

  • After obtaining the necessary permission from its board of directors and SEBI, the company pursued its buy-back program in 4QFY14 as well. However, the buyback program came to an end on 07th April 2014. During the quarter, the company bought and extinguished 376,099 equity shares. Consequently a sum of Rs 1.88 m has been reduced from share capital and Rs 60.1 m has been reduced from securities premium account. In all 3.53 m shares were bought back.
What to expect?
We believe the near term scenario for seamless pipes will continue to be challenging in both domestic (Chinese competition and excess supply) and international markets. A slowdown in the capex cycle is weighing on the company's pipe sales volume. However, the fact that the company's sales in US won't be subject to anti-dumping duty is likely to support export growth in the future. The company expects 20-30% growth from the US market in FY15 with margins ranging between 15-20%. Further, there have been talks of imposing a safeguard duty in order to protect the domestic industry from cheap Chinese imports. This may also support revenue growth.

At the current price of Rs 332, the stock trades at around 23.3 times its trailing twelve month earnings. Considering the revival in overseas markets especially the US and talks of imposing safeguard duty, we recommend investors to be patient and Hold on to the stock.

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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