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Mah. Seamless: The other income kicker
Jul 28, 2010

Maharashtra Seamless has announced its 1QFY11 results. The company has reported a 6% YoY decrease and a 54% YoY increase in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline declines by 5.8% YoY during 1QFY11 on account of a fall in average realisations.
  • EBITDA margins expand from 23.4% in 1QFY10 to 23.6% in 1QFY11.
  • Other income rises by a significant 528% YoY during the quarter.
  • Profit after tax sees an increase of 54% YoY during 1QFY11 despite the fall in topline due to the expansion in operating margins, higher other income and a lower effective tax rate.


Standalone financial snapshot
(Rs m) 1QFY10 1QFY11 Change
Net sales 4,225 3,980 -5.8%
Expenditure 3,237 3,039 -6.1%
Operating profit (EBDITA) 988 941 -4.8%
EBDITA margin (%) 23.4% 23.6%  
Other income 56 354 527.5%
Depreciation 46 52 13.1%
Interest 12 8 -34.7%
Profit before tax 986 1,235 25.2%
Tax 334 230 -31.1%
Profit after tax/(loss) 652 1,005 54.0%
Net profit margin (%) 15.4% 25.2%  
No. of shares (m) 70.5 70.5  
Diluted earnings per share (Rs)   45.2  
Price to earnings ratio (x) *   8.8  
* on trailing twelve months earnings

What has driven performance in 1QFY11?
  • Maharashtra Seamless’ topline declined by 6% YoY mainly on account of lower realisations during the year. Revenues from steel pipes and tubes division declined by around 5% 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 4.5 bn at the end of 1QFY11.

  • Operating profits fell by 4.8% YoY mainly on account of reduced operating expenses. Operating expenses declined by 6.1% YoY backed by lower raw materials costs, as also lower other expenses (as a percentage of sales) during the year as compared to corresponding period last year. Operating margins expanded from 23.4% in 1QFY10 to 23.6% in 1QFY11.

    Segmental break-up
    (Rs m) 1QFY10 1QFY11 Change
    Steel pipes & tubes      
    Revenues 4,218 4,003 -5.1%
    PBIT margins 22.7% 23.5%  
    Wind power      
    Revenues 13 14 6.3%
    PBIT margins 51.2% 56.3%  
    Others      
    Revenues 51 317 523.4%

  • The bottomline of the company grew by 54% YoY mainly on account of higher operating margins as also the significantly higher other income and lower effective tax rate for the company during the quarter. The other income during the quarter mainly includes the gain on sale of non trade investments.

What to expect?
At the current price of Rs 398 the stock is trading at a multiple of 9.1 times our expected FY13 earnings estimates for the company. As per the company’s management, the demand outlook in the export market has improved significantly. The increased rig counts as well as increased exploration and production activities, including in India, on account of the recovery in oil prices also bode well for the demand of the company’s products in the global market. Domestic market conditions, especially from the boiler sector have also shown improvement. Domestic oil majors too are moving on with their ongoing projects in the exploration and production space.

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 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 at current levels.

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