Buy Maharashtra Seamless - Microsec

We rate Maharashtra Seamless Ltd. (MSL) a BUY. Our rating underpins the company's robust business model complimented with increasing exports and other strong client base. MSL is one of the flagship company of D.P. Jindal Group specializes in providing a whole range of high-class, customizable & innovative seamless pipes and tubes. It also diversifies its foray into ERW and coated pipes.

Government reform push to infrastructure sector will benefit the demand for its pipeline business in the coming years: MSL is India's largest manufacturers of Seamless Pipes and tubes in India for its extensive usage across various sectors viz; Oil & Gas, Hydrocarbon process, Power, Automotive etc. with its footing both in domestic as well as in overseas markets. Enhanced energy demand coupled with government reforms ensure for higher Exploration & Production (E&P) activities and shale gas discovery is going to act as a positive catalyst for the rise in demand for pipeline infrastructure in the coming years. The company produces pipes that yield higher realizations, has managed better capacity utilization rates than peers and has a cash-rich balancesheet.

Completion of Expansion Plan to add to Topline once the demand improves: MSL has successfully commissioned its expansion plan of the Seamless pipe plant at Mangaon which has the facility of manufacturing Drill pipes and other special grade pipes for boliers and other value added products.The commissioning of this plant facilitates the company to raise its total capacity of manufactured seamless pipes to to 5,50,000 metric tons per annum from its existing capacity of 3,50,000metric tons per annum.

Rise in Exports: So far MSL has its active presence in US for exports but now the company is planning to diversify its focus towards South American and Canadian markets for aggressive exports. To aid this export expansion programme the company invested considerably for the development of R&D center with state-of-the art equipment for the delivery of world class products for international markets. The management also opines that they will be able to generate 30% of revenues from exports in the coming days.

Efficient measures to boost production: The company adopted cost efficiency measures alongwith better inventory control in order to accentuate production by mitigate the issue of higher cost of production.

Strong Client Base: MSL cater its services to an array of high end domestic as well as global clients of which OIL, L &T,ONGC,BHEL, SAIL,Cairn, JP Associates are worth mentioning.

Valuation

At the CMP of INR336.00, the stock is trading at 6.20x its FY14E EPS of INR54.20. We assigned a P/E multiple of 8.00x for FY14E arrived at a target price of INR433.60 which shows an upside potential of ~29percent hence making the scrip an attractive buy.

Source : Equity Bulls

Keywords