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Mah Seamless: Another tough quarter - Views on News from Equitymaster
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Mah Seamless: Another tough quarter
Nov 19, 2012

Maharashtra Seamless Limited (MSL) has announced its results for the quarter ended September 2012. During the quarter, the company has reported a decline of 17.6% YoY in net sales and 46.7% YoY in net profits. Here is our analysis of the results.

Performance summary
  • The company's topline declined by 17.6% YoY during the quarter ended September 2012.
  • Both operating profits and operating margins declined by 51.4% YoY and 8% YoY respectively.
  • At the bottomline level, net profits for the quarter saw a decline of 46.7% YoY on account of high employee cost. Net profit margins saw a decline of 5% YoY.
  • For the half year ended September 2012, net sales and net profits declined by 6% YoY and 28.9% YoY respectively.

Financial performance snapshot
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Net sales 5,833 4,807 -17.6% 10,657 10,017 -6.0%
Expenditure 4,702 4,257 -9.5% 8,505 8,658 1.8%
Operating profit (EBDITA) 1,131 550 -51.4% 2,152 1,359 -36.8%
Operating profit margin (%) 19% 11%   20% 14%  
Other income 89 90 1.1% 175 273 56.4%
Interest (net) 9 22 144.4% 15 35 133.6%
Depreciation 46 94 104.3% 92 181 96.9%
Profit before tax 1,165 524 -55.0% 2,220 1,417 -36.2%
Exceptional Item - -   - -  
Tax 353 91 -74.2% 692 330 -52.3%
Profit after tax/(loss) 812 433 -46.7% 1,528 1,087 -28.9%
Net profit margin (%) 14% 9%   14% 11%  
No. of shares (m)         71  
Diluted earnings per share (Rs)         38.8  
P/E ratio (x)*         8.2  
* On a 12-month trailing basis

What has driven performance in 2QFY13?
  • Maharashtra Seamless has registered a 17.6% YoY decline in net sales. During the quarter under review, sales volumes of seamless pipes as well as ERW pipes were subdued. Sales volumes of seamless pipes during 2QFY13 were 56,175 tonnes (lower by 6% QoQ and 21% YoY) while that of ERW pipes stood at 19,929 tonnes (lower by 18% QoQ and 37% YoY). For 2QFY13, seamless pipes realisations stood at Rs 66,056/tonne (flattish QoQ but 11% higher YoY) while ERW realisations stood at Rs 45,261/tonne (higher by 5% QoQ as well as YoY).

    Break-up of operating costs
    (Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    Raw Materials 3,817 3,360 -12.0% 6,831 6,797 -0.5%
    % of sales 65% 70%   64% 68%  
    Employee cost 87 124 42.5% 162 245 51.2%
    % of sales 1% 3%   2% 2%  
    Other Expenditure 798 773 -3.1% 1,512 1,616 6.9%
    % of sales 14% 16%   14% 16%  
    Total operating expenditure 4702 4257 -9.5% 8505 8658 1.8%
    % of sales 81% 89%   80% 86%  

  • At the operating level, the company reported a decrease in expenditure of 9.5% YoY. Operating margin contracted by 8% YoY. Operating profits also tumbled by 51.4% YoY. The company was also not able to arrest the slide in margins in seamless pipe and reported lowest margins in last 5 yrs with EBITDA per tonne of Rs 7,788 per tonne. This is on back of low capacity utilization of seamless pipe mill post the commencement of the new mill, high raw material cost and higher competition from the Chinese mills.

  • Net profit declined by 46.7% YoY. Net profit margin also declined by 5% YoY. The order book has remained muted at Rs 4 bn indicating weakness in the market. Maharashtra Seamless also sounded cautious on the outlook for 3QFY13. Export order book remains strong and currently constitute 50% of its order book.

What to expect?
We believe the near term scenario for seamless pipe continue to be challenging in domestic markets (Chinese completion and excess supply) and international market (Reduction in rig counts, destocking in US and commissioning of local supply in US).

At the current price of Rs 332, the stock trades at around 8.2 times its trailing twelve month earning. We maintain our Buy view on the stock.

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