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Mah Seamless: Another weak quarter - Views on News from Equitymaster
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Mah Seamless: Another weak quarter
Nov 19, 2013

Maharashtra Seamless Ltd (MSL) has announced its results for the quarter ended September 2013. The company has reported a decline of 40.8% YoY in sales and 53.5% YoY in net profits for the quarter ended Sep 2013. Here is our analysis of the results.

Performance summary
  • The company's topline declines by 40.8% YoY during the quarter ended September 2013.
  • Both operating profits and operating margins declined by 52.9% YoY and 2% YoY respectively.
  • At the bottomline level, net profits for the quarter saw a decrease of 53.5% YoY while net profit margins declined by 2% YoY.
  • For the half year ended September 2013, net sales declined by 38.9% YoY and net profits declined by 56.1% YoY.


Standalone financial performance snapshot
(Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Net sales 4,807 2,844 -40.8% 10,017 6,117 -38.9%
Expenditure 4,256 2,584 -39.3% 8,658 5,529 -36.1%
Operating profit (EBDITA) 551 260 -52.9% 1,359 588 -56.7%
Operating profit margin (%) 11% 9%   14% 10%  
Other income 90 99 10.7% 273 219 -19.9%
Interest (net) 22 2 -89.3% 35 8 -77.3%
Depreciation 94 95 0.4% 181 189 4.7%
Profit before tax 524 262 -50.0% 1,417 610 -57.0%
Exceptional Item - -   - -  
Tax 91 60 -33.5% 330 133 -59.8%
Profit after tax/(loss) 433 202 -53.5% 1,087 477 -56.1%
Net profit margin (%) 9% 7%   11% 8%  
No. of shares (m)         71  
Diluted earnings per share (Rs)         16.4  
P/E ratio (x)*         10.4  
On a trailing 12 months basis

What has driven performance in 2QFY14?
  • Maharashtra Seamless has registered a topline decline of 40.8% YoY during the quarter ended September 2013. During the quarter, we saw a marginal increase in sales volumes of ERW pipes, which came in at 13,798 tonne, an increase of 7.3% QoQ but down 30.8% YoY. The sales volume of seamless pipes stood at 35,153 tonne, a drop of 3.6% QoQ and 37.4% YoY. For 2QFY14, seamless pipes realisations stood at Rs 56,624/tonne, a drop of 16.8% QoQ (Rs 68062/tonne in 1QFY14) while that of ERW stood at Rs 53,354/tonne, higher by 2.5% QoQ (Rs 52,044/tonne in 1QFY14).

    Break-up of operating costs
    (Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
    Raw Materials 3,360 2,002 -40.4% 6,797 4,238 -37.7%
    % of sales 70% 70%   68% 69%  
    Employee cost 124 99 -19.8% 245 211 -13.7%
    % of sales 3% 3%   2% 3%  
    Other Expenditure 773 483 -37.5% 1,616 1,081 -33.1%
    % of sales 16% 17%   16% 18%  
    Total operating expenditure 4256 2584 -39.3% 8658 5529 -36.1%
    % of sales 89% 91%   86% 90%  

  • At the operating level, the company reported a decline in expenditure of 39.3% YoY. Despite decline in expenditure, low sales led to a decline of 2.4% in operating margins YoY. During the quarter, the EBITDA/tonne of the seamless pipe segment stood at Rs 3795/tonne as against EBITDA/tonne of Rs 6726/tonne in 1QFY14 while EBITDA/tonne of ERW stood at Rs 5468/tonne (Rs 4255/tonne in 1QFY14).

  • The company's net profit decreased by 53.5% YoY. Net profit margins continue to disappoint and saw a decline of 1.9% YoY.

  • After obtaining the necessary permission from its board of directors and SEBI, the company is currently pursuing a buy-back of its shares. During the quarter, the company has bought and extinguished 719,745 equity shares amounting to Rs 136 m. The company has proposed a buy-back of its shares at a price not exceeding Rs 300 per equity share, payable in cash and not exceeding an aggregate amount of Rs 1 bn.
What to expect?

We believe the near term scenario for seamless pipe continue to be challenging in the domestic markets (Chinese competition and excess supply) and international market. A slowdown in the domestic and global capex cycle is weighing on the company's pipe sales volume. However, the on-going buy-back of shares by the company will continue to provide support to the company's stock price, going forward.

At the current price of Rs 156, the stock trades at around 9.5 times its trailing twelve month earnings. The stock is also trading around 2 times our estimated FY16 book value which makes it attractive. But looking at the challenging scenario in the short term, 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 allocationand that no single midcap stock comprises more than 3% of your portfolio.

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