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Maharashtra Seamless: Operating margin kicker - Views on News from Equitymaster
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Maharashtra Seamless: Operating margin kicker
Oct 30, 2009

Performance summary
  • Topline declines by 30.1% YoY during the quarter, on account of lower realisations.
  • Operating expenses declines by 41% YoY, higher than the topline, thus enabling EBITDA margins to expand by 13.6% YoY to 26.1% in 2QFY10.
  • Bottomline grew by 11.3% YoY, lower than operating profits on account of lower other income.
  • Half yearly net profits grew by 9.8% YoY, despite 11.3% YoY decline in the topline.


(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Net sales 5,869 4,101 -30.1% 9,386 8,326 -11.3%
Expenditure 5,136 3,029 -41.0% 7,823 6,267 -19.9%
Operating profit (EBDITA) 734 1,072 46.1% 1,563 2,059 31.7%
EBDITA margin (%) 12.5% 26.1%   16.7% 24.7%  
Other income 314 60 -80.8% 436 117 -73.3%
Interest (net) 48 7 -85.4% 59 19 -68.3%
Depreciation 46 46 1.1% 90 92 2.0%
Profit before tax 954 1,078 13.1% 1,850 2,065 11.6%
Extraordinary items            
Tax 315 367 16.6% 608 701 15.4%
Profit after tax/(loss) 639 712 11.3% 1,242 1,364 9.8%
Net profit margin (%) 10.9% 17.4%   13.2% 16.4%  
No. of shares (m) 70.5 70.5   70.5 70.5  
Diluted earnings per share (Rs)*         38.6  
Price to earnings ratio (x)**         8.3  
(* annualised, ** on trailing twelve months earnings)

What has driven performance in 2QFY10?
  • The topline declined by 30.1% YoY mainly on account of lower realizations during the quarter. Revenues from steel pipes and tubes division declined by around 31.9% YoY presumably due to reduced sales and exports realizations. The order book of the company stood Rs 4.1 bn at the end of quarter.

  • Operating profits grew by 46.1% YoY mainly on account of reduced operating expenses. Operating expenses declined by 41% YoY backed by lower raw materials costs, manufacturing and other expenditure (as % sales) during the quarter as compared to corresponding period last year. Operating margins grew from 12.5% in 2QFY09 to 26.1% in 2QFY10.

    Cost break-up…
    (Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10
    Raw materials 4,106 2,395 -41.7% 6,161 4,957
    % sales 70.0% 58.4%   65.6% 59.5%
    Staff cost 51 70 37.1% 101 126
    % sales 0.9% 1.7%   1.1% 1.5%
    Manufacturing expenses 766 478 -37.6% 1,241 965
    % sales 13.0% 11.7%   13.2% 11.6%
    Other expenditure 214 87 -59.5% 320 219
    % sales 3.6% 2.1%   3.4% 2.6%

  • The bottomline of the company grew by 11.3% YoY mainly on account of higher operating margins and reduced interest outgo. However, a significant fall in other income had restricted the bottomline growth.

What to expect?
At the current price of Rs 322, the stock is trading at a multiple of 6.2x the company’s expected FY12 earnings estimate. Although the topline growth of the company had been lower as compared to our estimates, the bottomline growth has come in line with our projections. Hence we do not feel the need to revise our estimates. We continue to remain positive on the stock.

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