Result Update November 13, 2014 Rating matrix Rating Target Target Period Potential Upside
: : : :
Maharashtra Seamless (MAHSEA)
Buy | 430 12 months 33%
Topline in-line, margins disappoint…
What’s Changed? Target EPS FY15E EPS FY16E Rating
Unchanged Changed from | 28.0 to | 26.3 Unchanged Unchanged
Quarterly Performance Revenue EBITDA (%) PAT
Q2FY15 363.9 7.4 34.9
Q2FY14 284.4 9.1 20.2
YoY (%) 28.0 -175bps 73.2
Q1FY15 269.0 5.5 22.5
QoQ (%) 35.3 186bps 55.3
Key Financials | Crore Total Op. Income EBITDA Cons Net Profit Adj EPS (|)
FY13 1729.4 171.8 152.4 21.6
FY14 1208.3 90.0 101.5 14.9
FY15E 1633.5 149.5 176.4 26.3
FY16E 2177.3 307.0 301.4 45.0
FY13 15.3 19.9 10.3 0.8 5.4 4.4
FY14 22.2 28.9 17.4 0.8 3.5 1.8
FY15E 12.5 16.3 10.0 0.8 5.9 3.9
FY16E 7.3 9.6 3.8 0.7 9.5 8.4
Valuation summary P/E Target P/E EV / EBITDA P/BV RoNW (%) RoCE (%)
Stock data Particular Market Capitalization (| Crore) Total Debt (FY14) (| Crore) Cash and Investments (FY14) (| Crore) EV (| Crore) 52 week H/L Equity capital Face value
| 323
Amount | 2210 Crore | 200 Crore | 623 Crore | 1787 Crore | 372/151 | 34.1 Crore |5
Price performance (%) Return % Jindal Saw
1M 1.4
3M 0.6
6M 45.4
12M 62.5
Maharashtra Seamless
-1.5
14.9
39.7
80.7
Analyst’s name Dewang Sanghavi
[email protected] Isha Bansal
[email protected]
ICICI Securities Ltd | Retail Equity Research
• Maharashtra Seamless reported a mixed set of Q2FY15 numbers. EBITDA came in below our estimates while PAT came in above our estimates • The company reported a net income from operations of | 363.9 crore for the quarter, up 35.3% QoQ and 28% YoY and broadly in line with our estimate of | 372 crore • EBITDA came in at | 26.9 crore (EBITDA margin of 7.4%) and was below our estimate of | 34.2 crore (EBITDA margin of 9.2%) • The consequent PAT came in at | 34.9 crore, up 55.3% QoQ and 73.2% YoY and higher than our estimate of | 29.1 crore. PAT came in higher than our estimate on account of lower-than-expected depreciation charge and effective tax rate Safeguard duty on imported seamless pipes bodes well for company Over the last couple of years, supplies of seamless pipes and tubes from domestic manufacturers (like Maharashtra Seamless) to E&P and other companies had been affected by dumping of steel pipes and tubes by Chinese manufacturers. Hence, in August 2014, the Director General (Safeguard) recommended that the Government of India impose a safeguard duty on import of seamless pipe and tubes. Subsequently, the central government imposed a safeguard duty on imported seamless pipes and tubes, which is as follows: • • •
20% duty ad valorem when imported during August 13, 2014 to August 12, 2015 10% duty ad valorem when imported during August 13, 2015 to August 12, 2016 and 5% duty ad valorem when imported during August 13, 2016 to February 12, 2017
As Maharashtra Seamless is a major player in the domestic seamless pipe segment it is likely to be a key beneficiary of the imposition of safeguard duty on import of seamless pipe and tubes. This move is likely to aid Maharashtra Seamless in augmenting its sales realisations in the domestic market. Furthermore, the sales volume is also likely to witness healthy traction, going forward. Capacity utilisation levels to improve, going forward Over the last couple of years, Maharashtra Seamless has been operating at muted capacity utilisation levels. Dumping by Chinese players coupled with a muted demand scenario has led to subdued utilisation for MSL. However, going forward, we believe the imposition of the safeguard duty will lead to a gradual improvement in utilisation levels in MSL’s seamless pipes segment. Imposition of safeguard duty to improve utilisation; maintain BUY… Going forward, we expect an improvement in capacity utilisation and realisation levels. We have maintained seamless sales volume of 217500 tonnes for FY15E and 275000 tonnes for FY16E. We have also maintained ERW sales volume of 55000 tonnes for FY15E and 60000 tonnes for FY16E. We have valued the company at 6x FY16E EV/EBITDA, thereby arriving at a target price of | 430. We maintain our BUY recommendation on the stock. Maharashtra Seamless has a strong balance sheet, healthy cash flow and net cash status, which augurs well for the company.
Variance analysis Q2FY15 Q2FY15E Revenue 363.9 372.0 Other Income 21.0 20.0 Employee Expenses 10.3 12.4 Raw Material Expenses 254.0 254.6 Other Expenses 72.8 70.8 EBITDA 26.9 34.2 EBITDA Margin (%) 7.4 9.2 Depreciation 5.1 10.0 Interest 1.2 0.8 Exceptional Item 0.0 0.0 PBT 41.6 43.4 Total Tax 6.7 14.3 PAT 34.9 29.1 Key Metrics Sales of Seamless (in tonne) 47,759 48,125 Sales of ERW (in tonne) 13,280 14,000 Blended EBITDA/tonne (in |/T) 4,402 5,502 Source: Company, ICICIdirect.com Research
Q2FY14 YoY (%) 284.4 28.0 9.9 111.3 9.9 4.1 200.2 26.9 48.3 50.6 26.0 3.5 9.1 -175bps 9.5 -46.3 0.2 395.8 0.0 0.0 26.2 58.7 6.0 10.4 20.2 73.2 35,153 13,789 5,304
35.9 -3.7 -17.0
Q1FY15 QoQ (%) 269.0 35.3 21.2 -1.1 10.0 3.2 186.8 35.9 57.3 27.0 14.9 80.7 5.5 186bps 9.8 -48.3 0.6 85.9 0.0 0.0 25.6 62.2 3.2 111.4 22.5 55.3 36,903 12,302 3,022
29.4 7.9 45.7
Comments Marginally lower than estimate Other income came in line with our estimate Employee expenses came in lower-than-expected Raw material expenses came in line with our estimate Other expenses came in higher-than-expected EBITDA margins came in ower than estimates Depreciation expense came in lower than estimate
Effective tax rate came in lower than estimate PAT came in higher than our estimate on account of lower tax Sales of seamless pipes came in lower than our estimate Sales volume of ERW came in lower than our estimate Blended EBITDA/tonne came in lower than our estimate
Change in estimates (| Crore) New Old % Change Revenue 1,633.5 1,633.5 0.0 EBITDA 149.5 173.0 -13.6 EBITDA Margin (%) 9.1 10.6 (150) bps Adj PAT 176.4 187.9 -6.1 EPS (|) 26.3 28.0 -6.1 Source: Company, ICICIdirect.com Research
New 2,177.3 307.0 14.1 301.4 45.0
FY16E Old % Change 2,177.3 0.0 307.0 0.0 14.1 0 bps 301.4 0.0 45.0 0.0
Comments Maintained estimates for FY15E and FY16E Revised downward FY15E estimate. Maintained FY16E estimates Revised downward FY15E estimate. Maintained FY16E estimates Revised downward FY15E estimate. Maintained FY16E estimates Revised downward FY15E estimate. Maintained FY16E estimates
Assumptions
Sales of Seamless (in tonne) Sales of ERW (in tonne) Blended EBITDA/tonne (in |/T) Source: Company, ICICIdirect.com Research
Current FY15E FY16E 217,500 275,000 55,000 60,000.0 5,485 9,164
ICICI Securities Ltd | Retail Equity Research
Earlier FY15E FY16E 217,500 275,000 55,000 60,000 6,350 9,164
Comments Maintained estimates Maintained estimates Revised downward FY15E. Maintained FY16E estimate
Page 2
Company Analysis Maharashtra Seamless is a leading manufacturer of seamless and ERW carbon & alloy steel pipes and tubes in India. Both seamless & ERW plants are a first of their kind in India and have a technical tie-up with SMS MEER (earlier known as Mannesmann Demag) of Germany. The plant is strategically located in Nagothane, about 100 km from the Mumbai Port. MSL has also set up a new state-of-the-art facility for manufacturing both drill pipes as well as casing, tubing and line pipes at Mangaon. Safeguard duty on imported seamless pipes bodes well for company Over the last couple of years, supplies of seamless pipes and tubes from domestic manufacturers (like Maharashtra Seamless) to E&P and other companies had been affected by dumping of steel pipes and tubes by Chinese manufacturers. Hence, in August 2014, the Director General (Safeguard) recommended that the Government of India impose a safeguard duty on import of seamless pipe and tubes. Subsequently, the central government imposed a safeguard duty on imported seamless pipes and tubes, which is as follows: • • •
20% duty ad valorem when imported during August 13, 2014 to August 12, 2015 10% duty ad valorem when imported during August 13, 2015 to August 12, 2016 and 5% duty ad valorem when imported during August 13, 2016 to February 12, 2017
As Maharashtra Seamless is a major player in the domestic seamless pipe segment it is likely to be a key beneficiary of the imposition of safeguard duty on import of seamless pipe and tubes. This move is likely to aid Maharashtra Seamless in augmenting its sales realisations in the domestic market. Furthermore, the sales volume is also likely to witness healthy traction, going forward. Capacity utilisation levels to improve going forward Over the last couple of years, Maharashtra Seamless has been operating at muted capacity utilisation levels. Dumping by Chinese players coupled with a muted demand scenario has led to subdued utilisation for MSL. However, going forward, we believe the imposition of the safeguard duty will lead to a gradual improvement in utilisation levels in MSL’s seamless pipes segment. Subsequently, we have modelled seamless pipe sales volume of 217500 tonnes and ERW pipe sales volume of 55000 tonnes for FY15E. For FY16E, we have modelled seamless pipe sales volume of 275000 tonnes and 60000 tonnes for ERW pipe sales volume. Order book status The order book of the company as of September 30, 2014 stands at | 405 crore. The export to domestic mix stood at 58:42. The seamless segment constituted 69% (| 279 crore) of the order book while the ERW segment constitutes the remaining 31% (| 126 crore).
ICICI Securities Ltd | Retail Equity Research
Page 3
Valuation Going forward, we expect an improvement in capacity utilisation and realisation levels. We have maintained seamless sales volumes of 217500 tonnes for FY15E and 275000 tonnes for FY16E. We have also maintained ERW sales volume of 55000 tonnes for FY15E and 60000 tonnes for FY16E. We have valued the company at 6x FY16E EV/EBITDA, thereby arriving at a target price of | 430. We maintain our BUY rating on the stock. Maharashtra Seamless has a strong balance sheet, healthy cash flow and net cash status, which augurs well for the company. Exhibit 1: Valuation Matrix Year
Sales
Growth (%)
FY13
(| Crore) 1729.4
-25.1
FY14 FY15E
1208.3 1633.5
-30.1
FY16E
2177.3
EPS EPS Growth (|) 21.6
(%) -51.0
PE EV/EBITDA RoNW (x) 15.3
-31.2
35.2
14.9 26.3
77.1
22.2 12.5
33.3
45.0
70.9
7.3
RoCE
(x)
(%)
10.3
5.4
(%) 4.4
17.4
3.5
1.8
10.0
5.9
3.9
3.8
9.5
8.4
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 4
Company snapshot 500 Target Price: 430
450 400 350 300 250 200 150 100 50
Oct-15
Jul-15
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
0
Source: Bloomberg, Company, ICICIdirect.com Research
Key events Date
Event
Jun-08 Nov-08 Sep-09 Jan-10
Receives export orders worth US$45 million from US. Also secures domestic orders worth | 86 crore from IOC Receives a large order from ONGC worth | 757 crore. Cumulative order book now stands at | 1370 crore The US government imposes anti-dumping duty on imports of seamless pipes for China, which proves to be beneficial for the company Secures export orders for 22000 tonne for supply of seamless casting pipes. GoI initiates grounds for anti-dumping duty on cheap Chinese imports into the country (seamless pipes & tubes) Sep-10 Reliance Mutual Fund acquires 1.05% stake in the company via a bulk deal on stock exchanges Jan-11 Enters into a power purchase agreement (PPA) with NTPC Vidyut Vyapar Nigam (NVVN), for a period of 25 years to sell electricity to be generated by the 5 MW capacity 'Solar Photovoltaic Power Project' to be set up by the company in Rajasthan. The company has been selected by NVVN to set up the above said Photovoltaic Power Project under the Jawaharlal Nehru National Solar Mission of the Government of India May-11 Secures an order worth | 247 crore from ONGC for supply of 44200 tonne of seamless casting pipe Mar-12 Commissions its new state-of-the-art manufacturing facility of six seamless plant at Vile-Bhagad Industrial Area, Near Mangaon (Maharashtra) Nov-12 Accepting the recommendations of the IMG, the GoI de-allocates coal block awarded to Maharashtra Seamless (Gondkhari coal block; awarded in consortium to Apr-13 The board of directors of Maharashtra Seamless approve proposed buyback of equity shares of the company at a price not exceeding | 300 per equity share, payable in cash and not exceeding an aggregate amount of | 100 crore. The buyback shall be from the open market through stock exchange May-13 Receives export order amounting to US$22 million (~| 120 crore) for supply of seamless and ERW pipes for drilling programmes in the US May-13 Net profit plunges 50% to | 153 crore in FY13 vis-à-vis | 311 crore in FY12. Turnover also plunges 25% to | 1722 crore (| 2292 crore in FY12) Source: Company, ICICIdirect.com Research
Top 10 Shareholders Rank 1 2 3 4 5 6 7 8 9 10
Name Odd & Even Trades & Finance Pvt. Ltd. Stable Trading Co., Ltd. Templeton Asset Management Ltd. Brahmadev Holding & Trading, Ltd. Global Jindal Fin-Invest, Ltd. Haryana Capfin Ltd Reliance Capital Asset Management Ltd. Jindal (Saket) Agarwal (Ram Saran) Religare Enterprises Ltd
Shareholding Pattern Latest Filing Date % O/S Position (m) Change (m) 30-Jun-14 17.45 11.7 0.0 30-Jun-14 16.84 11.3 0.0 30-Sep-14 9.16 6.1 0.0 30-Jun-14 8.60 5.8 0.0 30-Jun-14 8.10 5.4 0.0 30-Jun-14 4.26 2.9 0.0 30-Jun-14 2.88 1.9 -0.2 30-Jun-14 2.58 1.7 0.0 30-Jun-14 2.43 1.6 -0.1 30-Jun-14 2.04 1.4 0.0
(in %) Promoter FII DII Others
Dec-13 Mar-14 Apr-14 Jun-14 Sep-14 57.1 57.4 58.5 58.5 58.5 13.5 13.6 14.6 12.6 11.8 8.7 7.5 6.6 7.1 8.4 20.7 21.5 20.3 21.9 21.3
Source: Reuters, ICICIdirect.com Research
Recent Activity Buys Investor name DSP BlackRock Investment Managers Pvt. Ltd. IDFC Asset Management Company Private Limited Mellon Capital Management Corporation Kotak Mahindra Asset Management Company Ltd. BNP Paribas Asset Management India Pvt. Ltd.
Value 4.61m 0.61m 0.42m 0.22m 0.20m
Shares 0.89m 0.12m 0.08m 0.04m 0.04m
Sells Investor name Maharashtra Seamless, Ltd. Employees Welfare Trust SBI Funds Management Pvt. Ltd. Royce & Associates, LLC HDFC Asset Management Co., Ltd. Fidelity Management & Research Company
Value -5.60m -3.63m -3.59m -2.51m -1.10m
Shares -1.08m -0.78m -0.70m -0.69m -0.41m
Source: Reuters, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 5
Financial summary (Consolidated) Profit and loss statement (Year-end March) Net Sales
(| crore) FY15E
FY16E
(Year-end March)
FY13
FY14
FY15E
FY16E
1729.4
1208.3
1633.5
2177.3
Profit after Tax
152.4
101.5
176.4
301.4
0.0
0.0
0.0
0.0
Total Operating Income
1729.4
1208.3
1633.5
2177.3
Raw Material & Mfg Expenses Employee Expenses Other expenses Total Operating Expenditure
Add: Depreciation
37.9
37.1
31.8
42.9
(Inc)/dec in Current Assets
258.8
-79.4
-172.2
-84.2
Inc/(dec) in CL and Provisions
-103.2
86.4
105.7
181.3
11.1
2.6
0.0
0.0
CF from operating activities
357.0
148.2
141.8
441.4
-25.1
-30.1
35.2
33.3
1209.6
855.1
1099.0
1399.3
44.6
40.1
55.1
63.0
303.3
223.2
329.9
408.0
(Inc)/dec in Investments
-220.2
-93.4
0.0
-175.0
(Inc)/dec in Fixed Assets
-105.4
107.9
-30.0
-30.0
0.0
-4.8
-5.7
-6.9
-325.5
9.7
-35.7
-211.9
Others
1557.6
1118.3
1484.1
1870.3
EBITDA
171.8
90.0
149.5
307.0
Others
Growth (%)
-57.2
-47.6
66.1
105.4
CF from investing activities
Depreciation
37.9
37.1
31.8
42.9
Issue/(Buy back) of Equity
7.5
5.6
5.0
2.8
Interest Other Income
(| crore)
FY14
Other Operating Income Growth (%)
Cash flow statement
FY13
0.0
-1.1
-0.6
0.0
Inc/(dec) in loan funds
52.9
-22.1
-25.0
-125.0
Dividend paid & dividend tax
-49.5
-47.9
-47.1
-47.1
Inc/(dec) in Share Cap
-44.8
-63.7
-34.5
-34.4
0.0
0.0
0.0
0.0
-41.4
-134.8
-107.2
-206.6
70.5
63.9
88.2
85.2
196.9
111.2
200.8
346.5
0.0
0.0
0.0
0.0
44.4
14.4
30.1
52.0
152.5
96.8
170.7
294.5
Net Cash flow
-9.9
23.2
-1.2
22.9
-0.1
4.8
5.7
6.9
Opening Cash
22.7
12.8
35.9
34.7
PAT after MI
152.4
101.5
176.4
301.4
Closing Cash
12.8
35.9
34.7
57.7
Growth (%)
-51.0
-33.4
73.8
70.9
EPS (|)
21.6
14.9
26.3
45.0
FY14
FY15E
FY14
FY15E
FY16E 45.0
PBT Exceptional Item Total Tax PAT Minority Interest , etc
Others CF from financing activities
Source: Company, ICICIdirect.com Research
Source: Company, ICICIdirect.com Research
Balance sheet (Year-end March)
(| crore) FY13
FY16E
Liabilities Equity Capital
Key ratios (Year-end March)
FY13
Per share data (|)
35.3
34.1
33.5
33.5
EPS
21.6
14.9
26.3
Reserve and Surplus
2,779.4
2,764.5
2,853.6
3,066.5
Cash EPS
27.0
19.6
30.2
50.4
Total Shareholders funds
2,814.6
2,798.7
2,887.1
3,100.0
BV
399.0
409.9
431.0
462.7
202.4
180.3
155.3
30.3
DPS
6.0
6.0
6.0
6.0
70.5
73.1
73.1
73.1
Cash Per Share
1.8
5.3
5.2
8.6
0.0
0.0
0.0
0.0
3,087.5
3,052.0
3,115.5
3,203.4
Total Debt Deferred Tax Liability Minority Interest / Others Total Liabilities Assets Gross Block Less: Acc Depreciation Net Block Capital WIP
Operating Ratios (%) EBITDA Margin PBT / Total Operating income
1,649.3
1,655.5
1,695.5
1,735.5
389.2
426.3
458.1
501.0
1,260.1
1,229.3
1,237.4
1,234.5
PAT Margin
9.9
7.4
9.1
14.1
11.4
9.2
12.3
15.9
8.8
8.0
10.4
13.5
108.5
131.5
120.0
100.0
Debtor days
67.2
103.4
90.0
70.0
Creditor days
30.5
70.7
75.0
86.0 9.5
Inventory days
150.3
36.2
26.2
16.2
1,410.4
1,265.4
1,263.6
1,250.7
Return Ratios (%)
Investments
740.1
833.5
833.5
1,008.5
RoE
5.4
3.5
5.9
Inventory
514.0
435.2
537.1
596.5
RoCE
4.4
1.8
3.9
8.4
Debtors
318.5
342.4
402.8
417.6
RoIC
4.5
1.8
3.9
8.6
Other Current Assets
245.6
379.8
389.8
399.8
Valuation Ratios (x)
12.8
35.9
34.7
57.7
P/E
15.3
22.2
12.5
7.3
1,090.8
1,193.4
1,364.4
1,471.5
EV / EBITDA
10.3
17.4
10.0
3.8
144.4
233.9
335.7
513.0
1.0
1.3
0.9
0.5
Total Fixed Assets
Cash Total Current Assets Current Liabilities Provisions Current Liabilities & Prov Net Current Assets Application of Funds
EV / Net Sales
9.6
6.4
10.4
14.4
Market Cap / Sales
1.3
1.9
1.4
1.0
153.9
240.3
346.0
527.4
Price to Book Value
0.8
0.8
0.8
0.7
Solvency Ratios
936.9
953.1
1,018.4
944.2
3,087.5
3,052.0
3,115.5
3,203.4
Source: Company, ICICIdirect.com Research
Debt / EBITDA
1.2
2.0
1.0
0.1
Current Ratio
7.1
5.0
3.9
2.8
Source: Company, ICICIdirect.com Research
ICICI Securities Ltd | Retail Equity Research
Page 6
ICICIdirect.com coverage universe (Pipes) CMP Sector/Company
M Cap TP (|) Rating
(| Cr)
82 Hold
2377.7
Maharashtra Seamless 323 430 Buy Source: Company, ICICIdirect.com Research
2215.8
Jindal Saw
(|) 80
EPS (|) FY14
P/E (x)
EV/EBITDA (x) FY14 FY15E FY16E
ROE(%)
FY16E
-3.1
9.7
18.2
NA
8.0
4.3
12.4
8.2
5.9
3.3
6.3
8.9
-2.4
7.0
11.8
14.9
26.3
45.0
21.7
12.5
7.3
17.4
10.0
3.8
1.8
3.9
8.4
3.5
5.9
9.5
ICICI Securities Ltd | Retail Equity Research
FY14 FY15E FY16E
ROCE(%)
FY15E
FY14 FY15E FY16E FY14 FY15E FY16E
Page 7
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;
Pankaj Pandey
Head – Research
[email protected]
ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai – 400 093
[email protected] ANALYST CERTIFICATION We /I, Dewang Sanghavi MBA (FIN) Isha Bansal MBA (FIN) research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.
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ICICI Securities Ltd | Retail Equity Research
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