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Maharashtra Seamless: Research meet extracts - Views on News from Equitymaster

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Maharashtra Seamless: Research meet extracts
Nov 24, 2008

We recently had a research meet (concall) with the CFO of Maharashtra Seamless to discuss the current business environment, the company’s performance and the industry scenario. Here are the extracts of the meeting. Brief background:
Maharashtra Seamless Limited (MSL) is the flagship company of the D.P Jindal Group. It was incorporated in 1989 and is the largest manufacturer of seamless pipes in India, primarily used in oil & gas exploration activities. It has a nearly 50 per cent market share in the seamless pipes space and is major revenue generator contributing an average 70 per cent to company revenues.

The company also manufactures electric arc welded (ERW) pipes used in the refining industry. Its wide range of pipe products also finds application in the hydrocarbon & process industry, automotive, boilers, bearings, mechanical & general engineering industries. The company is increasingly focusing on manufacture of high diameter pipes, both in the seamless and ERW pipes category. Currently, the company is the sole manufacturer of 14--inch diameter seamless pipes in India, a niche segment that is largely import intensive.

Moreover, it also offers value--added services like anti--corrosion coating for pipes and connectors used in drilling. It also has presence in the renewable energy segment, having 20 windmills aggregating to 7 MW capacities for captive consumption. Its plant is located in Raigad district of Maharashtra, which has manufacturing capacity of seamless pipes of 350,000 tonnes and ERW pipes of 250,000 tonnes annually.

Company’ performance: Let us see the performance of the company between FY03 and FY08.

  • The company managed to grow its topline at a CAGR of 30% on the back of robust growth in the oil and gas sector.

  • Operating profits of the company grew at a CAGR of 29%, nearly in line with the topline growth. The operating margins increased from 22% in FY03 to 24% in FY07. However it fell to 20% in FY08 on account of increased steel prices during the period. The average operating margins for the period stood at 21%.

  • The botttomline of the company grew at a CAGR of 25%, less than the topline and operating profits growth mainly on account of higher growth in taxes during the period.

Romanian Acquisition: The company recently acquired seamless pipes plant in Romania on an asset sale basis having a capacity of 200,000 tonnes, which it is relocating to India and plans to undertake modernization at an estimated cost of Rs 3.5 bn that will take the company’s seamless plant capacity to 500,000 tonnes per annum. The expansion is expected to be completed by September 2010. The company has already incurred Rs 1 bn and plans to spend remaining Rs 2.5 bn in next two years. The acquisition is completely funded by internal accruals.

Capex needs: Other than the amount required for the above expansion, the company spends around Rs 250 m yearly towards maintenance capex. It has the unique track record of putting up plant at lowest capex levels.

Order Book: Currently, the order book size of the company is at around Rs 14 bn. It recently bagged an order of Rs 7.5 bn from ONGC to supply seamless pipes in 15 months. Earlier in June 2008, the company got an exports order worth US$ 45 m (approx Rs 2.2 bn) from a US based firm.

Revenue Mix: The company is the largest domestic manufacturer of seamless pipes. It accounts for around 50% of market share in India. It also has significant presence in overseas markets through its exports to USA, Middle Eastern countries, Japan etc. Seamless pipes contribute around 76% of the total revenue. Oil and gas sector accounts for nearly 55% of the seamless pipes segment. ERW contributes nearly 23% of the total revenue of the company. The windmills cater to nearly 13% of the total power requirement of the company.

Future Plans: The company is looking at acquiring a steel plant in order to have backward integration and enable itself to insulate from steel price volatility.

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