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Maharashtra Seamless: Subdued performance continues - Views on News from Equitymaster

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  • Aug 28, 2012 - Maharashtra Seamless: Subdued performance continues

Maharashtra Seamless: Subdued performance continues
Aug 28, 2012

Maharashtra Seamless Limited (MSL) has announced its results for the quarter ended June 2012. During the quarter, the company has reported a rise of 8% YoY in net sales and 8.8% YoY decline in net profits. Here is our analysis of the results.

Performance summary
  • The company's topline grows by 8% YoY during the quarter ended June 2012.
  • Both operating profits and operating margins declined by 20.8% YoY and 5.7% YoY respectively.
  • At the bottomline level, net profits for the quarter saw a decline of 8.8% YoY on account of high employee cost. Net profit margins saw a decline of 2.4% YoY.
  • Other income for the quarter grew by a staggering 113% YoY.

Financial performance snapshot
(Rs m) 1QFY12 1QFY13 Change
Net sales 4,824 5,210 8.0%
Expenditure 3,804 4,401 15.7%
Operating profit (EBDITA) 1,021 808 -20.8%
Operating profit margin (%) 21.2% 15.5%  
Other income 86 184 113.0%
Interest (net) 6 12 121.4%
Depreciation 46 87 89.3%
Profit before tax 1,055 893 -15.4%
Exceptional Item - -  
Tax 339 239 -29.4%
Profit after tax/(loss) 717 654 -8.8%
Net profit margin (%) 14.9% 12.5%  
No. of shares (m) - 71  
Diluted earnings per share (Rs)   44.1  
P/E ratio (x)*   7.5  
* On a trailing 12 months basis

What has driven performance in 1QFY13?
  • Maharashtra Seamless has registered a topline growth of 8% YoY during the quarter ended June 2012. Sales volumes of seamless pipes during 1QFY13 were 59,495 tonnes (lower by 14% QoQ but higher by 2% YoY) while that of ERW pipes stood at 24,382 tonnes (lower by 27% QoQ and 10% YoY). For 1QFY13, seamless pipes realisations stood at Rs 64,838 per tonne (higher by 2% QoQ and 12% YoY) while ERW realizations stood at Rs 42,995 per tonne (lower by 1% QoQ but higher by 1% YoY). Revenue from steel pipes and tubes increased 7.3% YoY. Revenues from the wind power segment also registered a robust growth of 182% YoY.

    Cost break-up
    (Rs m) 1QFY12 1QFY13 Change
    Raw Materials 3,014 3,437 14.0%
    % of sales 62.5% 66.0%  
    Employee cost 75 121 61.8%
    % of sales 1.6% 2.3%  
    Other Expenditure 715 843 17.9%
    % of sales 14.8% 16.2%  
    Total operating expenditure 3804 4401 15.7%
    % of sales 78.8% 84.5%  

  • At the operating level, the company reported an increase in expenditure of 15.7% YoY. As a result operating margin contracted by 5.7% YoY. Operating profits also tumbled by 20.8% YoY. This was due to high raw material and employee cost. The EBITDA per tonne of seamless pipes stood at Rs 11,572 per tonne (lower by 27% YoY but higher by 12% QoQ). For ERW pipes, the EBITDA per tonne stood at Rs 3,101 per tonne (higher by 3% YoY but lower by 17% QoQ).

  • Net profit declined by 8.8% YoY. However the decline in net profit was stopped to some extent by higher other income which saw an increase of 113% YoY. Lower taxes also helped in arresting some of the decline in net profit. Net profit margin also declined by 2.4% YoY. The order book of the company has declined sequentially to Rs 3.52 bn as of June 2012. (Rs 4.51 bn at the end of 4QFY12). The export to the domestic mix stood at 58:42 (in 4QFY12 it was 66:34).

What to expect?
Currently, the government is giving importance to the initiative of pan-India pipeline connectivity for gas. This will have a positive impact on the requirement for both seamless as well as ERW pipes. However, over the last few quarters, the EBITDA per tonne of seamless pipes has stayed subdued due to higher operating costs. Dumping of steel pipes and tubes by China in the Indian market has adversely impacted the domestic market. At the current price of Rs 332, the stock trades at around 7.5 times its trailing twelve month earning. We maintain our positive view on the stock.

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