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Table of Contents
Executive Summary 3
Key demand drivers for metal pipes in Oil & Gas industry 10
Disclaimer 69
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Executive Summary
Along with domestic oil & gas distribution (which is expected to increase sharply from 34.1 MMT to
38.3 MMT and 35.0 BCM to 72.0 BCM respectively), refining capacities are expected to be ramped up
from the current 248 MMTPA to 307 MMTPA by FY22. However, India’s existing metal pipeline
infrastructure falls far short of what is required to cater to the incumbent demand. A similar situation
exists in the water and sanitation segment too. And as the government moves forward on its plan to
fulfil basic aspirations, the shortages in the metal pipeline network stand further accentuated.
To address these shortages, the present day government has undertaken a number of initiatives
which should boost the demand for metal pipes:
According to the World Bank, per capita water availability in India is only 1,118 cubic meters, which
is significantly lower than China (2,062 cubic meters), Brazil (27,721 cubic meters) and USA (8,844
cubic meters) and marginally higher than South Africa (821 cubic meters), which is a desert country.
Lots of work has to be done on efficient water transmission, which is expected to propel demand
for metal pipes.
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Significant demand drivers are in place for domestic metal pipe manufacturers, which could keep
the order book elevated and ensure higher capacity utilizations.
1) Demand from oil & gas sector: Heightened activity in both, the global and domestic energy markets
is expected to trigger sustained demand for metal pipes. The key triggers being:
SAW pipes
• Improvement in the share of liquid fuel and gas in energy mix
• Replacement of India’s aged oil & gas transmission pipelines and rollout of national gas grid by
GAIL India Ltd
ERW Pipes
• Pan India CGD rollout
2) Water & sanitation: India’s water availability and sanitation are plagued by a host of issues.
• India is a significantly water stress country
• Rising demand stressing water availability
• Evapotranspiration needs to be averted to improve water availability.
• Increasing urbanization
• Heavy dependence on monsoon precipitation
• Low penetration of irrigation infrastructure
• Water intensive cropping patterns
• Lack of sewage disposal
To deal with these issues and the impending water crisis, the government has taken a series of
measures which should boost demand for metal pipes mainly SAW, ERW & DI pipes.
• Increase in budgetary allocation for water segments
• Network of water transmission pipelines to link rivers, canals and other water bodies across the
country.
• Infrastructure to improve the utilization of Ganga – Brahmaputra – Meghana river basin
• AMRUT scheme launched to enhance sewage treatment capacities
3) Metal pipe manufacturers have ready capacity, no near-term capex required: All the domestic
metal pipe manufacturers are currently operating at 50-60% capacity utilization. The current total
installed capacity is sufficient to cater to the upcoming demand over the next 3-4 years. And hence,
no new capex is required.
4) Significantly reduced competition from local players: Stringent quality requirements have further
reduced local competition. Since, only organized players are able to meet the requirements their
performance outlook stands further enhanced.
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5) Anti-dumping duties
a. Chinese imports in domestic market: To strengthen the domestic metal pipe industry,
government imposed anti-dumping duties on imports of seamless pipes (used in oil & gas
exploration and refining) from China (duties ranging from $961/MT to $1611/MT) in Q1FY17.
This has brightened the outlook for the domestic seamless pipe industry. As a result, players
like Maharashtra Seamless Ltd (MSL) in carbon steel seamless pipes and Ratnamani Metals &
Tubes Ltd (RMTL) in stainless steel seamless pipes are expected to be the biggest beneficiaries.
b. Restriction on export to the US market: The US International Trade Commission has imposed
restrictions on the import of large diameter SAW pipes used for oil & gas and water transmission.
At the same time, the US domestic demand for transmission pipes has increased materially.
Domestic manufacturers are in a sweet spot given the enhanced demand and import restrictions
which have meant good pricing power resulting in increased utilizations and improved EBIDTA
per ton. Welspun Copr with its US based manufacturing facility is a clear beneficiary.
6) Increased spends on E&P and water & sanitation in the Middle East & North Africa: The Middle
East and North Africa is home to 6% of the world’s population and the region has less than 2% of the
global water resources. Strong demand for water transmission pipeline has meant that players with
localized manufacturing like Welspun Corp, should benefit significantly.
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Steel pipes and their usage
Steel Pipes
Carbon Stainless
L-SAW H-SAW
Steel Steel
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Given the strong demand scenario and operational ability of the key players in
the respective segments, we initiate coverage on the steel pipe stocks with a
BUY rating on Maharashtra Seamless Ltd, Ratnamani Metals & Tubes Ltd,
Welspun Corp Ltd & Jindal SAW Ltd. We have a Neutral view on Man
Industries Ltd. Our rationale for the same is surmised as under
MSL acquired 100% stake in United Seamless Tubular Ltd (USTL) – 350,000
MTPA for Rs.477 Cr, in NCLT bidding. With this acquisition, MSL’s total
capacity stands augmented to 900,000 MTPA. The MSL management will be
undertaking a further capex of Rs.125 Cr over the period FY19-22 to
operationalize the 350,000 MTPA capacity (75,000 MTPA in FY20, 125,000
MTPA in FY21 and 150,000 MTPA in FY22).
The USTL deal is value accretive considering the fact that a greenfield
capacity of similar size would have cost MSL Rs.2.0 cr per 1,000 MTPA, and
MSL has incurred an outgo of only Rs.1.7 cr per 1,000 MTPA (Rs.477 Cr for
acquisition & Rs.125 Cr for capacity revamp), while a new greenfield plant
requires investment of Rs.2.0 Cr for setting-up 1000 MTPA capacity.
This acquisition is quite opportune considering the fact that we are at the cusp
of a turnaround (given the improving procurement from the E&P segment and
anti-dumping duties on Chinese seamless pipes).
The MSL management has guided for an increase in the capacity utilization to
80% by FY22 from the current 60%. As a result, we expect MSL’s sales
volumes to grow at a CAGR of 27.6% to 9.28 lac tonnes by FY22. Factoring
in the strong demand, realizations have already increased by ~25% in FY19
(Rs.76,800 per MT). As a result, we are modelling flat to neutral growth in
realization.
On the back of the above we expect net revenues to grow at a CAGR of 34.9%
to Rs. 7,127 Cr during FY18-22E. With EBITDA per ton expected to be range
bound (Rs.13,000 – 15,000 per ton) we estimate an EBITDA CAGR of 42.1%
to Rs.1,267 Cr and net earnings CAGR of 47.4% to Rs.784 Cr over the same
period. Consequently, return ratios, RoE and RoCE are also set to improve to
15.1% (+945 bps) and 19.0% (+1,236 bps) respectively by FY22
We have valued the stock on a P/BV basis as historically the P/E has not
proven to be a reliable indicator to value the stock given its extreme
fluctuations. At the CMP of Rs.458, the stock currently trades at the P/BV of
0.68x FY22 earnings. We initiate with the BUY for a price objective of Rs.595
(0.85x FY22), which represents an upside potential of 30%
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Ratnamani Metals & Tubes Ltd (RMTL): A balanced player with multiple
growth drivers in place
The stock is currently trading at the FY22 forwarded P/E of 11.4x. We are
valuing RMTL at FY22 P/E of 15x at the target price of Rs.1,114, giving upside
potential of 31.5%. We recommend BUY at the current market price of Rs.847
A rise in the investments in oil & gas rigs in the US has significantly increased
pipe procurement to expand the pipeline transmission infrastructure.
Meanwhile new profitable projects signed by WCL in Saudi are offsetting the
effect of older loss-making pipeline projects in the kingdom. Indian business is
also gaining traction due to the government’s focus on replacing old oil & gas
pipelines, improving water transmission across the country and building a
national gas grid. With all the three geographies set to enter the next leg of
growth, we expect WCL’s sales volumes to grow at a CAGR of 7.8% to 17.3
lacs tonnes over the period FY19-22. As a result, the utilization is set to
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improve from 53% in FY19 to 71% in FY22. Realization per MT remained flat
in FY19, and we have assumed stable pricing over the forecast period.
The stock is currently trading at the FY22 forwarded P/E of 4.4x. We are
valuing WCL at the FY22 P/E of 6.5x at the target price of Rs.192, which
suggests an upside potential of 46.5%. We recommend BUY at the current
market price of Rs.131
MIL is a focused SAW pipe player with a capacity of 1.0 million MTPA (500,000
MTPA and LSAW capacity of 500,000 MTPA), with a strong global presence
(USA, Middle East, Africa, South America and Asia Pacific). MIL has reported
a history of volatile revenues throughout its life span. In 9MFY19, the capacity
utilisation increased from 23% to 39% on the back of a robust orderbook. As
on date, the company has a strong order book position of approximately
Rs.1,250 Cr including both domestic and international orders. The bid book
also remains strong at approximately Rs. 11,500 Cr.
Overall, we expect SAW pipe volume growth of 20.3% CAGR to 4.98 lacs
tonnes between FY18-22E. Average realization per MT increased by ~2% in
9MFY19 and we are expecting a sustained growth in realization for the coming
years. Therefore, revenue is expected to grow at a CAGR of 21.3% to
Rs.3,405 Cr during FY18-22E. Similarly, the EBITDA per ton is expected to
improve from Rs.5,165 in FY18 to Rs.6,085 in FY22E. In-line with the
operating performance, PAT is expected to grow at a CAGR of 26.2% to
Rs.169 Cr during FY18-22E. Consequently, the RoE is also set to improve to
16.8%(+576bps) and the RoCE should improve to 17.3%(+646bps) by FY22E.
The stock is currently trading at the FY22 forwarded P/E of 2.0x. Despite
having high growth prospects its valuations continue to remain supressed
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given corporate governance issues. (These are enumerated in detail in the
report). We have not rated the stock.
Jindal SAW Ltd (JSAW): Operating performance to offset the debt drag
JSAW is a well-diversified domestic & global play in the metal pipe industry
with a considerable presence in SAW (20 lac MTPA capacity), Seamless (2.5
lac MTPA capacity) & DI (10 lac MTPA capacity) pipe segments. In 9MFY19,
the capacity utilisation for SAW pipes stands at 32% (530bps YTD), while that
for seamless & DI pipes stands at 68% (67bps YTD) & 54% (710bps YTD)
respectively. Over the period FY19-22 we expect the capacity utilization
across three segments to improve to – 47.3% / 94.5% / 75.8% respectively.
In-line with the improving utilization, we expect sale volumes to grow to – 9.46
MT (15.6% CAGR) / 2.36 MT (8.9% CAGR) / 7.57 MT (12.5% CAGR)
respectively leading to an average volume growth of 14.2% to 19.9 lac tons
over the period FY18-22.
At the CMP of Rs.83, the stock currently trades at adjusted P/BV of 0.33x FY22
on a standalone basis. The adjusted BV is at Rs.238 per share (BV of
standalone = Rs.251 per share less negative BV of its subsidiaries = Rs.13).
We initiate with a BUY for a price objective of Rs.119 (0.5x FY22), which
represents an upside potential of 37%.
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Peer group comparison
Figures are in Rs Cr (except per share data, return ratios and price multiples).
EBITDA PAT
RoE RoCE P/E P/BV EV/EBITDA
Sales EBITDA PAT
Margin Margin EPS BV
(%) (%) (x) (x) (x)
(%) (%)
Maharashtra Seamless Ltd (Market Cap – Rs.3,231 Cr, CMP – Rs.458)
FY17 1,434 225 116 15.7 8.1 17.3 410 4.2 4.5 26.6 1.1 15.6
FY18 2,150 311 166 14.5 7.7 24.8 437 5.7 6.6 18.5 1.1 11.8
FY19E 2,839 556 340 19.6 12.0 50.8 478 10.6 12.4 9.1 1.0 6.2
FY20E 3,779 717 468 19.0 12.4 69.8 534 13.1 14.5 6.6 0.9 5.4
FY21E 5,216 959 588 18.4 11.3 87.8 613 14.3 17.2 5.2 0.8 4.0
Ratnamani Metals & Tubes Ltd (Market Cap – Rs.3,960 Cr, CMP – Rs.847)
FY17 1,412 257 144 18.2 10.2 30.9 254 12.2 16.6 27.2 3.3 14.9
FY18 1,767 266 152 15.1 8.6 32.5 280 11.6 14.8 25.8 3.0 15.0
FY19E 2,814 408 255 14.5 9.0 54.5 332 16.4 21.1 15.4 2.5 9.4
FY20E 3,106 452 288 14.6 9.3 61.6 390 15.8 18.3 13.6 2.2 9.3
FY21E 3,539 517 295 14.6 8.3 63.2 450 14.0 17.8 13.3 1.9 7.5
Welspun Corp Ltd (Market Cap – Rs.3,468 Cr, CMP – Rs.131)
FY17 5,899 512 89 8.7 1.5 1.0 106 3.2 2.8 128.4 1.2 8.6
FY18 7,543 684 239 9.1 3.2 6.0 108 8.4 7.4 21.4 1.2 5.4
FY19E 8,953 573 148 6.4 1.7 2.3 106 5.3 7.7 56.7 1.2 6.3
FY20E 9,792 999 481 10.2 4.9 14.8 103 17.5 19.6 8.6 1.2 3.0
FY21E 11,233 1,238 671 11.0 6.0 22.0 122 20.8 25.8 5.8 1.0 1.9
Man Industries Ltd (Market Cap – Rs.333 Cr, CMP – Rs.58)
FY17 1,060 46 33 4.3 3.1 5.7 105 5.4 0.6 10.3 0.6 11.8
FY18 1,572 123 67 7.8 4.2 11.7 114 10.2 9.1 5.1 0.5 4.4
FY19E 2,585 247 92 9.5 3.5 16.1 120 13.3 21.0 3.7 0.5 2.4
FY20E 2,858 272 133 9.5 4.6 23.3 141 16.5 19.0 2.5 0.4 1.3
FY21E 3,134 299 158 9.5 5.0 27.6 165 16.8 19.6 2.1 0.4 1.2
Jindal SAW Ltd (Market Cap – Rs.2,406 Cr, CMP – Rs.75)
FY17 5,696 862 339 15.1 6.1 10.6 174 6.1 6.8 7.0 0.4 7.1
FY18 7,287 992 415 13.6 7.0 13.0 185 7.0 7.3 5.7 0.4 6.6
FY19E 10,078 1,307 541 13.0 8.5 16.9 200 8.5 9.4 4.4 0.4 4.6
FY20E 11,591 1,295 502 11.2 7.3 15.7 214 7.3 9.3 4.7 0.3 4.5
FY21E 12,896 1,453 651 11.3 8.8 20.4 232 8.8 10.9 3.6 0.3 3.7
Source: Company Reports & Ventura Research
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Steel pipe scatter chart
0.6
RMTL
0.5
0.4
PEG FY21
0.3
0.2
JSAW MSL WCL
0.1
MIL
0.0
10 12 14 16 18 20 22 24
Return on Capital Employed FY21 (%)
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Performance charts of metal pipe manufacturers
Pipe sales volume in Kilo Ton
2,000 Maharashtra Ratnamani Metals Welspun Man Jindal
1,500 Seamless & Tubes Corp Industries SAW
1,000
500
0
50
10
5
0
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❖ Key demand drivers for metal pipes in Oil & Gas industry
With the fall in oil prices, rig values declined globally, which further impacted
E&P activities and the seamless pipe manufacturers.
2000
1500
1000
500
0
Jul-10
Jul-08
Jul-09
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jan-16
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-17
Jan-18
Jan-19
Middle East U.S. Rest of World
Post the sharp fall of crude oil price in 2014-16, global E&P has put in a
recovery as oil prices have also improved. With global prices expected to
remain firm we expect demand for seamless pipes to pick up.
22
19
15
11 11
8
4 3
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
-8
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The Indian seamless pipe manufacturers have been beneficiaries of the
aggressive exploration activity of ONGC.
501 503
415
377 381 392 378
345
322
❖ Easing policies for E&P in India to trigger demand for seamless pipes
To enhance domestic oil production GOI has come out with an industrially
friendly E&P policy, which is expected to encourage investments in this space.
Given the favourable environment we expect the demand outlook for seamless
pipes to improve significantly.
22.5 21.8 20.8 21.1 20.9 20.8 22.8 23.5 22.7 22.6
20.5 19.2
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
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New policy to trigger natural gas output
58.8
51.5
47.6 47.8 40.4
40.7 27.9
38.5 16.3
26.1 21.6 35.4 33.7 35.0
14.5 32.3 31.9 8.1
9.5 8.9 7.9 3.2 3.3 3.5 3.7
8.2 6.9
2.4 2.6 2.6 2.6 2.7 2.9 2.9
2.8
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
The gradual rise in oil production and significant surge in natural gas
production is expected to trigger demand for seamless pipes. The traction for
the same has been visible over the last 2 years.
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E FY23E
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The upcoming refining capacities with BS VI standards are expected to sustain
a CAGR growth of 5.5% to 87,000 MT by FY22 of stainless steel seamless
pipes. RMTL by virtue of being the only listed player (Sandvik and Sumitomo
being the unlisted MNC vendors) is expected to be the biggest beneficiary.
The current crude oil refining capacity in North Eastern Region (NER) of India
is 7.0 MTPA and is expected to increase to 16.0 MTPA by FY24 after the
expansion of IOCL’s Guwahati refinery. Similarly, the currently supply of
natural gas from the region is in the range of 12.0-13.0 MMSCMD, which is
expected to increase to ~30.0 MMSCMD by 2030. Potential for the CGD
network and industrial usage of gas are expected to drive the demand for the
natural gas in NER
7 5 FY23
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY24
FY25
FY26
FY27
FY28
FY29
FY30
5
FY27
FY15
FY16
FY17
FY18
FY19
FY20
FY21
FY22
FY23
FY24
FY25
FY26
FY28
FY29
FY30
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The above-mentioned infrastructure projects are expected to create huge
demand for SAW pipes in NER.
❖ Improvement in the share of liquid fuel and gas in energy mix to drive
demand for SAW pipes
Increase in domestic E&P, refining and berthing of oil & gas (from imports) is
projected to improve the share of oil, petroleum products and natural gas in
the total energy mix of India from 36% in 2017 to 45% by 2025. Such a
significant increase in the share on a growing base of energy demand (India’s
energy demand is expected to grow at 4.5-5.0%, according to BP Statistical
Review), will lead to significant demand growth of ~85% for SAW pipe volume
in absolute terms by 2025
2017 2025
Others,
Others, 8% 5%
➢ Replacement of old oil & gas trunk pipelines and demand from national
gas grid to drive trigger demand for SAW pipes
Few of the oil & gas transmission pipelines in India have outlived their
economic lives of 30 years and there is a pressing need to replace these. We
expect ~1/10th of the oil & gas pipelines to be replaced, leading to a demand
volume for 2,500-3,000 km length of SAW pipes.
India has over 18,000 kms of trunk pipeline for natural gas transmission
and an additional 11,000 kms is under construction which is expected to
get completed in the next 5-7 years.
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Natural Gas trunk pipeline network to expand
29000
35000
28000
27000
Gas trunk pipeline network in Km
26000
24500
30000
22500
20500
25000
18397
17753
17658
17421
17329
15519
20000
12029
10772
10246
15000
9622
7964
7332
6729
6388
Govt has announced Rs.70,000 Crores
10000
of capex to spread gas pipeline across
5000 country
FY15
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY16
FY17
FY18
FY19E
FY20E
FY21E
FY22E
FY23E
FY24E
FY25E
Source: PNGSTAT, PNGRB & Ventura Research
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➢ Pan India CGD rollout (post 9th & 10th rounds of CGD auctions) to drive
demand for SAW and ERW pipes
With the completion of the 9th & 10th CGD bidding round by PNGRB, the
natural gas would be made available in 228 GAs covering 404 districts spread
over 27 states and UTs. It is expected to cover ~70% of India’s population and
~53% of its geographical area. As per the commitments made by the
successful CGD players in the 9th & 10th round of auctions, the new GAs
would require ~1.56 lacs kms of steel pipeline networks by 2026.
Source: PNGRB
Length of pipe required under 9th & 10th bids of CGD auctions
21,435
17,609
15,618 15,618 15,618
13,118
4,900
Source: PNGRB
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❖ Key demand drivers for metal pipes in water segment
India has only 4% of the world’s renewable water resources, but is home to
~18% of the world’s total population. The country’s per capita water availability
is 1188 cubic meter per year (as per World Bank data), which is significantly
lower than the threshold limit of 1700 cubic meter for a water stressed country.
India has 20 river basins, which collectively handles 4000 BCM of water and
the average annual surface flow out of this is 1869 BCM, the rest being lost in
infiltration and evaporation. Out of the 1869 BCM, utilizable water is only 690
BCM (according to Central Water Commission).
From the above it is clear that despite the stress, India is a water surplus
country. All it needs is an efficient water transmission infrastructure to handle
the available water. The Modi government has initiated activities in this
direction, but significant work needs to be done to achieve the stated objective.
This is expected to drive significant demnd for metal pipes over the next
decade.
As per the World Bank data, India is a water stressed region with 1188 m³ of
per capita of water availability. (A country is categorized as ‘water stressed’
when water availability is less than 1,700 m³ per capita & considered ‘water
scarce’ if the level is less than 1000 m³ per capita). India’s per capita water
availability compares with those of the desert countries of Africa.
8,851
2,062
821 1,118
The situation is further accentuated given that India has only ~4% of the
world’s renewable water resources but is home to ~18% of the world’s total
population.
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Rising population is accentuating water problem in India
20%
18%
15%
7%
6%
5%
4%
3%
India is one of the wettest countries and still a water stressed land
4,508
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India water management
A covered pipeline is
1,047 BCM lost the solution to stop
Fresh water in evaporation evaporation, which
resources in is >25% of fresh
India water resource
1,084 BCM is
non-available
Of
4,000 this
water
billion cubic
meters
(BCM) 1,869 BCM is 1,123 BCM is usable water
available water (of which only 690 BCM) is
available for use
However, we waste 74% of available water due to the lack of an efficient water
transmission infrastructure. Most of the water is lost due to evapotranspiration.
The situation is so precarious that if we do not act now then the current
demand (634 bcm) will soon eclipse the current availability of 690 bcm. As per
the Central Water Commission, in 2025 the situation will become
unmanageable when demand is expected to reach 1000 bcm.
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Need to control the evapo-transpiration to meet upcoming demand
Groundwater recharge
Groundwater recharge = Not Estimated
= 452 BCM (11.3% of annual rainfall)
Utilizable water = *48.8% of 2400 BCM Utlizable water = *48.8% of 1400 BCM =
= 1171 BCM 683 BCM
However, the situation is not irreparable and timely action by the government
to scale up water infrastructure will help abate the situation. Checking evapo-
transpiration and seepage will aid in preserving water and improve availability
over and above the demand.
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India has about 20 river basins; however, due to increasing demand for water
for domestic, industrial and agricultural uses, most river basins are water
stressed. Increasing demand from a growing urban population, coupled with
economic activity adds pressure to the already stressed water resources.
Water availability is unevenly distributed across the country due to the uneven
monsoon pattern in India. The country experiences both floods and droughts
periodically and with inefficient rainwater harvesting infrastructure available,
excess water storage is next to impossible.
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India is at the mercy of uneven rainfall
2007
2009
2000
2001
2002
2003
2004
2005
2006
2008
2010
2011
2012
2013
2014
2015
2016
India Annual Rainfall (in mm) Average annual rainfall
India not only witnesses uneven rainfall every year, it also faces significant
regional variation in average annual rainfall
2500
2000
1500
1000
500
0
North East West Central South NER
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Rainfall distribution in India
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Groundwater abstraction increased its depth in India
Depth of groundwater in India (in meters) Groundwater abstraction (in km³ per year)
251
36.2 37.0
34.5 34.8 35.0
31.9 31.4 32.7
29.1
25.8 25.6 112 112
60 64
29 35
14 14 23
USA
Saudi Arabia
Indonesia
Mexico
Italy
Bangladesh
Iran
China
India
Pakistan
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
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Despite stress, India has one of the lowest irrigation coverage
100%
92%
64%
38%
16%
7%
India is one of the largest producers of rice, sugar and cotton and the water
consumption for these crops is significantly higher than global standards.
Water use for crop production (in cubic meters per ton)
India China USA
Rice 2,800 1,321 1,275
Sugarcane 159 117 103
Wheat 1,654 690 849
Cotton 8,264 1,419 2,535
Despite China and USA having better per capita water availability than India,
their water usage in agriculture is significantly more efficient than that of India.
Most of the irrigation projects use open canals as conduits for water
transportation. India being a tropical country transportation losses are
significant, given
• The higher rate of evapo transpiration,
• Water seepage given poor quality of canal construction, and
• Water theft
This has resulted in agricultural usage accounting for bulk of the water
consumption.
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Sectoral water requirement (as % of total regional)
North East West Central South NER India
Pan India agriculture accounts Agriculture 93.9 82.5 85.4 90.3 82.3 49.3 88.1
for 88% of the consumption Domestic 4.8 9.7 9.3 5.5 11.7 41.5 7.7
while particularly in North India
Industrial 0.5 5.6 2.8 1.5 3.8 3.5 2.4
this is significantly higher at 93%
Energy
0.8 2.2 2.5 2.7 2.2 5.7 1.8
Production
The other significant usages of water are for the purpose of drinking water,
industrial and energy production in that order (as shown in above table)
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Polluted river stretches (state-wise mix)
UP, 18%
Others, 26%
Telangana, 6%
Orissa, 5%
AP, 6%
Maharashtra, 17%
MP, 7%
Assam, 5%
Gujarat, 5%
Karnataka, 5%
Source: CPCB
GOI increased its budgetary allocation for water during FY17 & FY18 and the
actual investments on water were higher than the budgetary allocation by
28.5% during FY16-18. Investments have grown at a CAGR of 65.8% during
FY14-18, which shows the centre’s dedication to improve efficiency
12000
budgetary allocatyion in in 140%
past 3 years 120%
10000
100%
8000
80%
6000
60%
4000 40%
2000 20%
0 0%
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
• Laying a network of transmission pipes to interlink the rivers and water
bodies across India
Kerala
Maharashtra
Tamil Nadu
Madhya
Pradesh
Assam
Odisha
Haryana
Telangana
Rajasthan
West Bengal
Uttar Pradesh
Pradesh
Andhra
Source: PPP in India (by Dept of Economic Affairs)
Like KLIS, another major project on the Narmada river by NVDA will cater to
the drought in Madhya Pradesh. The completed projects currently cater to 4.0
lac hectares of irrigation area, while the under construction and proposed
projects are likely to cover 7.6 and 2.6 lac hectares of irrigation area.
Source: NVDA
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
The GOI is working on other key river linking projects in various states, which
are expected to be implemented in the coming years:
• Ken-Betwa link projects, which is expected to irrigate 8.98 lac
hectares of land annually in the drought prone areas of Uttar Pradesh
& Madhya Pradesh. The project will provide drinking water to around
15 lac people and generate 78 MW of hydropower.
• Damanganga-Pinjal project, which is expected to provide 895 million
m³ of water annually to Mumbai along with 5 MW of hydropower.
• Par-Tapi-Narmada project, which is expected to provide irrigation to
the area of 2.32 lac hectares of land annually. The project will also
provide drinking water to 27.5 lac people in Valsad, Navsari, Dang,
Tapi, Bharuch, Vadodara and Narmada districts of Gujarat. The project
is anticipated to generate 22 MW of hydropower.
• Project for diversion of Godavari water up to Cauvery basin, which
is expected to transfer 20,796 million m³ of water from Mahanadi &
Godavari to Cauvery basin through various links connected via canals
and transmission pipes.
Along with the above projects, government has also launched a ‘Flood
Management Program’ with an expenditure of Rs.18,000 Cr to develop
reservoirs to support river linking projects. This is also expected to lead to
network pipeline requirement.
GBM river basin (>59% of India’s total water reserves) is lagging behind in
water utilization, compared to other river basins (refer ‘River basin utilization’
chart on Page 25). Lack of infrastructure for water usage & treatment in UP,
Bihar, West Bengal & North East has impacted the utilization of GBM basin.
In numbers
15,000 50
34 40
10,000 30
20
5,000
10
0 0
2008-14 2014-17 2018-20
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Namami Gange Project
A total of 221 projects have been taken up under Namami Gange program at
a cost of Rs.22,240 Cr. Out of 221 projects, 60 projects have been completed
and balance are at various stages of implementation.
A total of 97 towns have been identified along the main river Ganga, which are
approximately generating 3,800 MLD of sewage, while the sewage treatment
capacity is only 1,650 MLD (43% of the demand). In Phase 1, 95 sewage
projects are being implemented across 61 towns (out of 97). This is projected
to create 1,950 MLD capacity (cost of Rs.15,000 Cr). 952 grossly polluting
industries have been identified on river Ganga and water treatment agencies
are working with them on zero liquid discharge monitored through CPCB
server. 764 industries have already been connected to CPCB server and
letters have been issued to remaining for installation and connectivity to CPCB
server.
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
• AMRUT has been rolled out to enhance sewage treatment capacities
To overcome the gap between the discharge and treatment capacities, GOI
has rolled out the Atal Mission for Rejuvenation and Urban Transformation
(AMRUT) scheme. The purpose of this scheme is to ensure that every
household has access to a tap with assured supply of water and a sewerage
connection
With over 500 cities covered under AMRUT program, the volume growth
opportunity for Ductile Iron (DI) pipes is expected to be 3.0-5.0x of the current
demand
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
❖ Demand requirement in various segments
The growth is expected to come across all segments of metal pipe industry.
Government is targeting to secure India’s energy resources by expanding
E&P, which will drive seamless pipe demand. Rise in E&P activity will increase
demand for necessary transmission infrastructure, which is expected to drive
demand for SAW pipes and ERW pipes.
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
1.1
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
➢ Very low competitive intensity
❖ Strong entry barriers for new players and anti dumping duties on
Chinese imports to ensure limited competition for seamless pipe
manufactures
➢ Big ticket orders from oil & gas majors for laying trunk pipeline and
government’s pan India water projects have eliminated competition from
local players
GAIL, ONGC & IOC are laying a pipeline network across India and generating
bulk orders for the metal pipe manufacturers. The state governments issue
orders to lay pipes from rivers and canals for the irrigation and water supply.
Only the best quality pipes can handle the high pressure of fossil fuels and
water. Quality and ability to fulfil large orders in the given time frame are the
eligibility criteria to qualify for procurement in such projects. Only the organized
SAW and ERW pipe manufacturers are eligible to take large government
orders for oil & gas and water pipeline projects, which has eliminated
competition from local players.
Billets are the key raw material for the seamless pipes; while HRC & HR plates
are the raw material for SAW and ERW pipes. The price stability is necessary
to sustain the gross margins in the metal pipe business. The pipe companies
pass-on higher input cost to the customers in a rising steel price scenario (on
a quarterly basis); and take the hit of inventory loss on falling steel prices.
Therefore, steel price stability is important to protect profitability in the metal
pipe segment.
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Domestic billet prices
40,000
Billet price in Rs per Ton
38,000
36,000
34,000
32,000
30,000
28,000
26,000
24,000
22,000
20,000
Jun-16
Jun-17
Jun-18
Apr-16
Aug-16
Apr-17
Apr-18
Apr-19
Dec-16
Aug-17
Dec-17
Aug-18
Dec-18
Feb-17
Feb-18
Feb-19
Oct-16
Oct-17
Oct-18
Source: Steelmint
50,000 HR Plates price in Rs per Ton 50,000 HRC price in Rs per Ton
48,000 48,000
46,000 46,000
44,000 44,000
42,000 42,000
40,000 40,000
38,000 38,000
36,000 36,000
34,000 34,000
32,000 32,000
30,000 30,000
Apr-16
Jun-16
Apr-17
Jun-17
Apr-18
Jun-18
Apr-16
Jun-16
Apr-17
Jun-17
Apr-18
Jun-18
Dec-17
Aug-16
Dec-16
Feb-17
Aug-17
Dec-17
Feb-18
Aug-18
Dec-18
Feb-19
Aug-16
Dec-16
Feb-17
Aug-17
Feb-18
Aug-18
Dec-18
Feb-19
Oct-16
Oct-17
Oct-18
Oct-16
Oct-17
Oct-18
Source:Steelmint
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Key risk and concern areas for the metal pipe industry
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Maharashtra Seamless Ltd.
STOCK POINTER
Shareholding Pattern heavy capex undertaken for E&P activities particularly NG exploration.
Shareholder % Currently the bulk of the production is to be carried out at its existing
Promoters 61.78
facilities. The USTL’s facility is being upgraded at an outlay of Rs.125 Cr
and the facility is expected to be operational in phases - 75,000 ton in FY20,
Institutional 10.17
125,000 ton in FY21 and 150,000 ton in FY22. The ERW plant (capacity of
Public 28.05
200,000 MTPA) located at Nagothane, Maharashtra operates at a mere 20-
Total 100.0 30% utilization. With CGD & water pipeline segment gaining traction, we
expect ERW sales volume to improve by 23.4% CAGR to 1,29,300 MT by
MSL vs. Sensex FY22 from the current 55,744 MT recorded in FY18
600 50,000
500 40,000
Without accounting for any sharp spurt in realization, we expect a revenue
400
30,000
CAGR of 33.9% to Rs.6,916 Cr by FY22. While MSL reported an average
300
20,000
EBITDA per ton of Rs.15,710 in 9MFY19, we forecast a lower EBIDTA per
200
10,000
ton of Rs.13,887 / Rs.12,745 / Rs.11,603 in FY20 / FY21 / FY22 given the
100
highly cyclical nature of the industry. We expect EBIDTA to grow at a 36.4%
0 0
Apr-16 Apr-17 Apr-18 Apr-19 CAGR to Rs.1,077 Cr by FY22 while PAT is expected to grow at 41.1%
MSL Sensex
CAGR to Rs.659 Cr over the same period
Key Financials (in ₹ crores)
EBITDA Margin PAT Margin EPS BV RoE RoCE P/E P/BV EV/EBITDA
Sales EBITDA PAT
(%) (%) ₹ ₹ (%) (%) (x) (x) (x)
FY18 2,150 311 166 14.5 7.7 24.8 437.3 5.7 6.6 18.5 1.0 11.8
FY19E 2,839 556 340 19.6 12.0 50.8 478.0 10.6 12.4 9.0 1.0 6.2
FY20E 3,742 683 446 18.3 11.9 66.5 531.2 12.5 13.7 6.9 0.9 5.7
FY21E 5,112 866 528 16.9 10.3 78.8 602.1 13.1 15.6 5.8 0.8 4.4
FY22E 6,916 1,077 659 15.6 9.5 98.4 700.5 14.0 17.4 4.7 0.7 3.6
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MSL capacities and utilization
FY18 FY19E FY20E FY21E FY22E
Existing seamless capacity (in MTPA) 5,50,000 5,50,000 5,50,000 5,50,000 5,50,000
USTL seamless capacity (in MTPA) 75,000 2,00,000 3,50,000
Seamless sales volume (in MT) 2,94,582 3,00,200 4,05,240 5,72,288 7,98,746
Seamless capacity utilization (%) 53.6 54.6 64.8 76.3 88.7
ERW capacity (in MTPA) 2,00,000 2,00,000 2,00,000 2,00,000 2,00,000
ERW sales volume (in MT) 55,744 69,500 86,875 1,06,856 1,29,296
ERW capacity utilization (%) 27.9 34.8 43.4 53.4 64.6
Blended Average Realization (Rs/Ton) 61,362 76,800 76,032 75,272 73,415
Blended Average EBITDA/Ton (in Rs) 8,878 15,028 13,887 12,745 11,603
We have valued the stock on a P/BV basis as historically the P/E has not
proven to be a reliable indicator given its extreme fluctuations. At the
CMP of Rs.458, the stock currently trades at the P/B of 0.68x FY22 BV.
We initiate with the BUY for a price objective of Rs.595 (0.85x FY22),
which represents an upside potential of 30%.
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
MSL annual performance analysis
Revenue in Rs Cr Figures in Rs Cr
8,000 60% 900
7,000 50% 800
6,000 40% 700
30% 600
5,000
20% 500
4,000
10% 400
3,000
0% 300
2,000 -10% 200
1,000 -20% 100
0 -30% 0
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
Net Sales YoY Growth
LT Borrowing ST Borrowing
EBITDA Margin PAT Margin
15,028
13,887
76,800
76,032
75,272
74,519
12,745
11,603
61,362
58,962
50,845
48,137
8,878
7,973
1,817
4,591
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
25%
Return Ratios 400
20%
Figures in Rs Cr
300
200
15%
100
10% 0
(100) FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
5%
(200)
0% (300)
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E (400)
-5%
(500)
RoE RoIC RoCE CFO FCFF
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
MSL’s financial performance in Rs Cr
700
600
500
400
300
200
100
0
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Jan-18
Apr-18
Apr-19
Jan-14
Jan-15
Jan-16
Jan-17
Jan-19
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
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Financials and Projections for MSL
Figures are in Rs Cr FY17 FY18 FY19E FY20E FY21E FY22E Figures are in Rs Cr FY17 FY18 FY19E FY20E FY21E FY22E
Profit & Loss Statement Per Share Data
Net Sales 1,434.2 2,149.7 2,839.3 3,741.6 5,112.0 6,915.7 Adjusted EPS 17.3 24.8 50.8 66.5 78.8 98.4
% Change 49.9 32.1 31.8 36.6 35.3 Adjusted Cash EPS 27.9 41.2 62.7 78.7 95.5 115.4
Total Expenditure 1,209.3 1,838.6 2,283.7 3,058.3 4,246.5 5,838.8 Dividend Per Share 2.5 5.0 10.2 13.3 7.9 0.0
% Change 52.0 24.2 33.9 38.9 37.5 Free Cash Flow Per Share 14.4 -0.2 7.6 -61.8 -6.7 -15.5
EBITDA 224.9 311.0 555.6 683.4 865.6 1,076.8 Cash Yield (%) 31.8 -1,950.7 60.1 -7.4 -68.0 -29.5
EBITDA Margin (%) 15.7 14.5 19.6 18.3 16.9 15.6 Book Value Per Share 409.9 437.3 477.8 533.4 612.1 728.8
Depreciation 71.0 76.2 79.7 81.3 112.1 113.7
Depreciation to Net Block 6.5 6.2 6.8 5.2 7.5 8.1 Capital, Liquidity & Return Ratios
EBIT 153.9 234.8 475.9 602.1 753.5 963.2 Total Debt to Equity (x) 0.1 0.2 0.2 0.2 0.2 0.2
EBIT Margin (%) 10.7 10.9 16.8 16.1 14.7 13.9 Current Ratio (x) 2.2 4.2 3.6 3.0 3.0 2.9
Other Income 76.3 65.0 88.7 100.3 80.4 80.1 Return on Equity (%) 4.2 5.7 10.6 12.5 13.1 14.0
Exceptional Items 0.0 0.0 0.0 0.0 0.0 0.0 Return on Capital Employed (%) 4.5 6.6 12.4 13.7 15.6 17.4
Interest Expenses 33.9 41.7 40.8 16.5 21.5 28.9
Interest Coverage Ratio 4.5 5.6 11.7 36.4 35.1 33.4 Valuation Ratios
PBT 196.3 258.1 523.8 685.8 812.5 1,014.4 P/E 26.5 18.5 9.0 6.9 5.8 4.7
Tax Provisions 80.5 92.0 183.3 240.0 284.4 355.0 P/CEPS 16.4 11.1 7.3 5.8 4.8 4.0
Tax Rate (%) 41.0 35.6 35.0 35.0 35.0 35.0 P/BV 1.1 1.0 1.0 0.9 0.7 0.6
PAT 115.8 166.2 340.5 445.8 528.1 659.4 EV/Sales 2.4 1.7 1.2 1.0 0.8 0.6
PAT Margin (%) 8.1 7.7 12.0 11.9 10.3 9.5 EV/EBITDA 15.6 11.8 6.2 5.7 4.4 3.6
Min Int & Share of Assoc -0.0 34.0 0.0 0.0 0.0 0.0
Net Profit 115.8 200.1 340.5 445.8 528.1 659.4 Efficiency Ratios
Net Margin (%) 8.1 9.3 12.0 11.9 10.3 9.5 Receivable Days 67 59 60 60 60 60
Inventory Days 114 83 120 120 120 120
Balance Sheet Payable Days 40 26 35 35 35 35
Share Capital 96.1 33.5 33.5 33.5 33.5 33.5 Net Working Capital Days 141 117 145 145 145 145
Reserves & Surplus 2,650.3 2,896.5 3,168.9 3,525.5 4,000.8 4,660.1
Total Shareholders Fund 2,746.4 2,930.0 3,202.4 3,559.0 4,034.3 4,693.6 Cash Flow Statement
Total Debt 640.0 626.4 635.6 821.2 811.5 841.1 Profit Before Tax 196.5 292.5 523.8 685.8 812.5 1,014.4
Deferred Tax Liabilities 235.6 256.8 256.8 256.8 256.8 256.8 Depreciation 71.0 76.2 79.7 81.3 112.1 113.7
Other Current Liabilities 234.3 232.4 299.4 399.1 552.0 756.9 Adjustments -26.1 -276.0 -281.4 -506.9 -708.2 -916.2
Total Liabilities 3,856.2 4,045.6 4,394.1 5,036.0 5,654.5 6,548.4 Cash Flow from Operations 241.4 92.7 322.1 260.2 216.3 211.9
Gross Block 1,769.2 1,997.7 2,022.7 2,499.7 2,524.7 2,549.7 Capital Expenditure -133.0 -102.2 -25.0 -477.0 -25.0 -25.0
Less: Accumulated D&A 674.2 762.6 842.3 923.6 1,035.6 1,149.3 Other Investment Activities 31.9 114.5 72.9 -59.2 -98.4 -219.0
Net Block 1,095.0 1,235.1 1,180.4 1,576.1 1,489.0 1,400.4 Cash Flow from Investing -101.1 12.2 47.9 -536.2 -123.4 -244.0
Capital Work in Progress 119.0 17.4 4.0 75.6 4.0 4.0 Changes in Equity 0.0 62.6 0.0 0.0 0.0 0.0
Non Current Investment 1,170.6 1,287.0 1,287.0 1,287.0 1,287.0 1,287.0 Changes in Borrowings -116.2 -124.5 9.1 185.6 -9.7 29.6
Long Term Loans & Advances 31.5 24.8 32.8 43.2 59.0 79.9 Dividend & DDT -16.8 -33.5 -68.1 -89.2 -52.8 0.0
Net Current Assets 769.4 1,120.0 1,362.2 1,353.6 1,851.4 2,463.3 Cash Flow from Financing -132.9 -95.4 -59.0 96.4 -62.5 29.6
Other Non Current Assets 670.7 361.2 527.6 700.4 964.0 1,313.9 Net Cash Flow 7.4 9.5 311.1 -179.6 30.4 -2.5
Total Assets 3,856.2 4,045.6 4,394.1 5,036.0 5,654.5 6,548.4 Opening Cash Balance 5.8 13.1 22.6 333.7 154.1 184.6
Closing Cash Balance 13.1 22.6 333.7 154.1 184.6 182.1
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Ratnamani Metals & Tubes Ltd.
STOCK POINTER
Shareholding Pattern present in the ERW space. This segment is gaining momentum on
%
increased procurement from the CGD and water supply segments.
Shareholder
Promoters 60.09
On the back of a favourable demand environment we expect overall sales
Institutional 20.35
to grow at a 22.6% CAGR to Rs.3,997 Cr by FY22. Over the same period, we
Public 19.56 expect the EBITDA to grow at a CAGR of 21.8% to Rs.585 Cr, while net
Total 100.0 earnings are expected to deliver a CAGR of 22.9% to Rs.347 Cr
respectively. Return ratios – RoE and RoCE, are also set to improve to
RMTL vs. Sensex 14.2% (+255 bps) and 17.1% (+226 bps), respectively, by FY22
1,200 50,000
1,000
At the CMP of Rs.847, the stock currently trades at the P/E of 11.4x FY22
40,000
800 earnings. We initiate with a BUY for a price objective of Rs.1,114 (15x FY22),
30,000
600 which represents an upside potential of 31.5%.
20,000
400
200 10,000
0 0
Apr-16 Apr-17 Apr-18 Apr-19
RMTL Sensex
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RMTL capacities and utilization
FY18 FY19E FY20E FY21E FY22E
Stainless Steel pipe capacity (in MTPA) 28,000 28,000 48,000 48,000 48,000
Stainless Steel pipe sales volume (in MT) 21,054 20,537 25,671 31,576 38,207
Stainless Steel pipe capacity utilization (%) 75 73 53 66 80
Carbon Steel pipe capacity (in MTPA) 3,50,000 3,50,000 3,50,000 3,50,000 4,00,000
Carbon Steel pipe sales volume (in MT) 1,98,802 2,96,461 3,11,329 3,42,462 3,73,283
Carbon Steel pipe capacity utilization (%) 57 85 89 98 93
Blended Average Realization (Rs/Ton) 75,477 87,187 90,525 92,941 95,412
Blended Average EBITDA/Ton (in Rs) 12,096 12,880 13,423 13,811 14,209
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RMTL Annual Performance
Revenue in Rs Cr 400
Figures in Rs Cr
4,500 70%
4,000 60% 350
3,500 50%
300
3,000 40%
30% 250
2,500
20% 200
2,000
10%
1,500 150
0%
1,000 -10% 100
500 -20% 50
0 -30%
0
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
Net Sales YoY Growth
EBITDA Margin PAT Margin LT Borrowing ST Borrowing
18,942
95,412
92,941
16,666
90,851
90,525
87,187
75,477
74,099
12,999
12,661
12,481
68,930
12,262
12,096
12,072
11,712
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
30%
Return Ratios 400
25% Figures in Rs Cr
300
20%
200
15%
100
10%
0
5% FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
(100)
0%
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E (200)
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
RMTL’s financial performance in Rs Cr
2,000
1,500
1,000
500
0
Apr-13 Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Financials and Projections for RMTL
Figures are in Rs Cr FY17 FY18 FY19E FY20E FY21E FY22E Figures are in Rs Cr FY17 FY18 FY19E FY20E FY21E FY22E
Profit & Loss Statement Per Share Data
Net Sales 1,411.8 1,766.8 2,813.8 3,105.9 3,539.2 3,997.1 Adjusted EPS 30.8 32.5 50.4 53.5 57.9 66.8
% Change 25.1 59.3 10.4 14.0 12.9 Adjusted Cash EPS 43.6 45.5 64.0 67.9 79.2 88.8
Total Expenditure 1,155.5 1,501.8 2,405.5 2,653.5 3,022.6 3,412.5 Dividend Per Share 0.0 5.5 2.7 3.1 3.2 0.0
% Change 30.0 60.2 10.3 13.9 12.9 Free Cash Flow Per Share 18.7 -29.3 -43.3 3.3 45.3 -49.4
EBITDA 256.4 264.9 408.3 452.4 516.6 584.7 Cash Yield (%) 2.2 -3.5 -5.1 0.4 5.3 -5.8
EBITDA Margin (%) 18.2 15.0 14.5 14.6 14.6 14.6 Book Value Per Share 254.3 280.3 331.9 390.4 450.4 524.7
Depreciation 59.7 60.6 63.6 67.2 99.3 102.9
Depreciation to Net Block 13.3 13.6 15.6 11.9 20.3 11.3 Capital, Liquidity & Return Ratios
EBIT 196.7 204.3 344.7 385.2 417.3 481.8 Total Debt to Equity (x) 0.0 0.0 0.0 0.1 0.1 0.1
EBIT Margin (%) 13.9 11.6 12.2 12.4 11.8 12.1 Current Ratio (x) 5.1 3.1 3.3 3.5 3.9 3.3
Other Income 14.6 33.4 54.0 59.6 67.9 76.7 Return on Equity (%) 12.2 11.6 16.4 15.8 14.0 14.2
Exceptional Items 0.0 0.0 0.0 0.0 0.0 0.0 Return on Capital Employed (%) 16.6 14.8 21.1 18.3 17.8 17.1
Interest Expenses 6.1 9.9 15.8 12.1 41.6 36.9
Interest Coverage Ratio 32.4 20.7 21.8 31.7 10.0 13.1 Valuation Ratios
PBT 205.2 227.9 382.9 432.6 443.6 521.6 P/E 27.5 26.1 16.8 15.8 14.6 12.7
Tax Provisions 61.2 76.1 128.3 144.9 148.6 174.7 P/CEPS 19.4 18.6 13.2 12.5 10.7 9.5
Tax Rate (%) 29.8 33.4 33.5 33.5 33.5 33.5 P/BV 3.3 3.0 2.6 2.2 1.9 1.6
PAT 144.1 151.8 254.6 287.7 295.0 346.8 EV/Sales 2.7 2.3 1.4 1.4 1.1 1.1
PAT Margin (%) 10.2 8.6 9.0 9.3 8.3 8.7 EV/EBITDA 15.1 15.2 9.5 9.3 7.5 7.4
Min Int & Share of Assoc 0.0 -0.0 -19.4 -37.7 -24.6 -34.9
Net Profit 144.1 151.8 235.2 250.0 270.4 311.9 Efficiency Ratios
Net Margin (%) 10.2 8.6 8.4 8.1 7.6 7.8 Receivable Days 101 100 110 105 100 95
Inventory Days 78 93 150 145 140 135
Balance Sheet Payable Days 37 37 50 50 50 50
Share Capital 9.3 9.3 9.3 9.3 9.3 9.3 Net Working Capital Days 142 157 210 200 190 180
Reserves & Surplus 1,178.4 1,299.5 1,540.6 1,813.9 2,094.1 2,440.9
Total Shareholders Fund 1,187.8 1,308.8 1,549.9 1,823.2 2,103.4 2,450.3 Cash Flow Statement
Total Debt 0.0 78.9 80.9 277.5 246.0 372.7 Profit Before Tax 205.2 227.9 382.9 432.6 443.6 521.6
Deferred Tax Liabilities 47.3 42.9 42.9 42.9 42.9 42.9 Depreciation 59.7 60.6 63.6 67.2 99.3 102.9
Other Current Liabilities 178.8 316.6 377.1 399.0 400.8 409.4 Adjustments -130.4 -361.2 -243.6 -502.8 -250.1 -265.5
Total Liabilities 1,413.8 1,747.3 2,050.8 2,542.6 2,793.2 3,275.2 Cash Flow from Operations 134.5 -72.7 202.9 -3.0 292.8 359.0
Gross Block 559.8 616.5 641.5 866.5 891.5 1,416.5 Capital Expenditure -65.6 -69.6 -25.0 -225.0 -25.0 -525.0
Less: Accumulated D&A 111.7 171.1 234.7 301.9 401.3 504.2 Other Investment Activities -36.9 90.8 -39.1 -27.9 34.2 -225.2
Net Block 448.1 445.4 406.8 564.6 490.2 912.3 Cash Flow from Investing -102.5 21.2 -64.1 -252.9 9.2 -750.2
Capital Work in Progress 38.3 46.9 12.5 112.5 12.5 262.5 Changes in Equity 0.0 0.0 0.0 0.0 0.0 0.0
Non Current Investment 0.0 0.0 0.0 0.0 0.0 0.0 Changes in Borrowings -27.6 67.3 -20.5 202.8 -62.6 108.0
Long Term Loans & Advances 11.7 10.9 16.9 18.6 21.2 24.0 Dividend & DDT 0.0 -25.7 -12.7 -14.4 -14.7 0.0
Net Current Assets 733.4 845.1 1,153.2 1,359.3 1,772.8 1,565.0 Cash Flow from Financing -27.6 41.6 -33.3 188.4 -77.4 108.0
Other Non Current Assets 182.3 399.0 461.5 487.6 496.4 511.4 Net Cash Flow 4.4 -9.9 105.6 -67.5 224.6 -247.3
Total Assets 1,413.8 1,747.3 2,050.8 2,542.6 2,793.2 3,275.2 Opening Cash Balance 12.3 16.7 6.8 112.3 44.8 269.5
Closing Cash Balance 16.7 6.8 112.3 44.8 269.5 22.2
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Welspun Corp Ltd.
STOCK POINTER
Shareholding Pattern operations for Rs.940 Cr) leading to a re-rating of the stock. WCL has
%
approved the buyback of 2.78 Cr shares at a maximum price of Rs.140.
Shareholder
Promoters 48.65
We expect revenues to grow at a CAGR of 8.7% to Rs. 12,478 Cr over the
Institutional 14.90
period of FY19-22. Similarly, EBITDA per Ton is expected to significantly
Public 36.45 improve from Rs.4,481 (FY19) to Rs.8,406 by FY22E, leading to an EBITDA
Total 100.0 CAGR of 26.2% to Rs.1,454 Cr. WCL reported 188% YoY growth in ‘Other
Expenses’ in Q4FY19, on account of 100% provisions made on its bond
WCL vs. Sensex investments in IL&FS and Reliance Capital Ltd. Any recovery from these
investments will be positive for EBITDA.
250 50,000
200 40,000
Post the reduced gearing and share buyback, we expect the PAT to grow
150 30,000
at a CAGR of 55.8% to Rs.870 Cr by FY22. Consequently, return ratios, RoE
100 20,000
and RoCE are also set to improve to 22.5% (+1716 bps) and 31.5% (+2374
50 10,000
bps) respectively over the same period
0 0
Apr-16 Apr-17 Apr-18 Apr-19
WCL Sensex
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
FY18 FY19 FY20E FY21E FY22E
US pipe capacity (in MTPA) 5,25,000 5,25,000 5,25,000 5,25,000 5,25,000
US pipe sales volume (in MT) 2,22,000 4,00,000 4,50,000 4,94,000 5,16,000
India pipe capacity (in MTPA) 16,00,000 16,00,000 16,00,000 16,00,000 16,00,000
India pipe sales volume (in MT) 7,64,000 6,00,000 7,43,000 8,64,000 9,78,000
Saudi Arabia pipe capacity (in MTPA) 3,00,000 2,73,000 3,00,000 3,00,000 3,00,000
Saudi Arabia pipe sales volume (in MT) 96,000 2,10,000 1,92,000 2,25,000 2,47,000
Blended Average Realization (Rs/Ton) 69,709 70,004 70,704 71,411 72,125
Blended Average EBITDA/Ton (in Rs) 6,317 4,481 7,213 7,872 8,406
The stock is currently trading at the FY22 P/E of 4.4x. We are valuing WCL
at the FY22 P/E of 6.5x at the target price of Rs.192, which suggests an
upside potential of 46.5%. We recommend BUY at current price of Rs.131
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
WCL Annual Performance
Revenue in Rs Cr Figures in Rs Cr
14,000 40% 3,000
12,000 30% 2,500
10,000 20%
2,000
8,000 10%
1,500
6,000 0%
4,000 -10% 1,000
8,406
73,370
7,872
72,125
7,312
7,213
71,411
7,071
70,704
70,004
69,709
6,317
5,475
65,793
4,481
63,020
FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
35%
Return Ratios Figures in Rs Cr
30% 2,000
25% 1,500
1,000
20%
500
15%
0
10% FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
(500)
5% (1,000)
0% (1,500)
FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
WCL’s financial performance in Rs Cr
200
150
100
50
0
Jul-16
Jul-14
Jul-15
Jul-17
Jul-18
Apr-19
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Financials and Projections for WCL
Figures are in Rs Cr FY17 FY18 FY19 FY20E FY21E FY22E Figures are in Rs Cr FY17 FY18 FY19 FY20E FY21E FY22E
Profit & Loss Statement Per Share Data
Net Sales 5,898.7 7,542.6 8,953.5 9,792.4 11,232.9 12,478.4 Adjusted EPS 1.0 6.0 2.3 14.8 22.0 29.5
% Change 27.9 18.7 9.4 14.7 11.1 Adjusted Cash EPS 15.6 20.3 12.1 25.1 33.7 41.7
Total Expenditure 5,386.3 6,859.0 8,380.4 8,793.4 9,994.7 11,024.1 Dividend Per Share 0.5 0.5 0.6 2.2 3.5 5.3
% Change 27.3 22.2 4.9 13.7 10.3 Free Cash Flow Per Share 3.1 30.4 13.0 13.3 27.4 34.0
EBITDA 512.4 683.5 573.1 999.0 1,238.2 1,454.3 Cash Yield (%) 2.4 23.2 9.9 10.2 20.9 26.0
EBITDA Margin (%) 8.7 9.1 6.4 10.2 11.0 11.7 Book Value Per Share 106.0 107.7 105.6 103.5 121.9 146.2
Depreciation 386.1 379.3 259.7 272.2 309.7 322.2
Depreciation to Net Block 11.5 12.5 16.7 17.2 22.6 28.1 Capital, Liquidity & Return Ratios
EBIT 126.3 304.2 313.4 726.8 928.5 1,132.1 Total Debt to Equity (x) 0.6 0.5 0.4 0.3 0.1 0.0
EBIT Margin (%) 2.1 4.0 3.5 7.4 8.3 9.1 Current Ratio (x) 1.4 1.5 0.0 0.0 0.0 0.0
Other Income 224.6 131.2 134.7 132.5 161.7 160.2 Return on Equity (%) 3.2 8.4 5.3 17.5 20.8 22.5
Exceptional Items 0.0 0.0 0.0 0.0 0.0 0.0 Return on Capital Employed (%) 2.8 7.4 7.7 19.6 25.8 27.7
Interest Expenses 235.7 185.3 177.4 171.7 131.0 49.2
Interest Coverage Ratio 0.5 1.6 1.8 4.2 7.1 23.0 Valuation Ratios
PBT 115.2 250.1 270.6 687.6 959.2 1,243.1 P/E 131.0 21.9 58.0 8.8 6.0 4.4
Tax Provisions 25.8 11.2 122.3 206.3 287.8 372.9 P/CEPS 8.4 6.5 10.9 5.2 3.9 3.1
Tax Rate (%) 22.4 4.5 45.2 30.0 30.0 30.0 P/BV 1.2 1.2 1.2 1.3 1.1 0.9
PAT 89.4 238.9 148.4 481.3 671.4 870.2 EV/Sales 0.8 0.5 0.4 0.3 0.2 0.1
PAT Margin (%) 1.5 3.2 1.7 4.9 6.0 7.0 EV/EBITDA 8.7 5.5 6.5 3.1 2.0 1.2
Min Int & Share of Assoc -63.0 -80.6 -88.5 -88.5 -88.5 -88.5
Net Profit 26.4 158.3 59.9 392.8 582.9 781.7 Efficiency Ratios
Net Margin (%) 0.4 2.1 0.7 4.0 5.2 6.3 Receivable Days 63 87 67 50 50 50
Inventory Days 87 92 79 140 137 134
Balance Sheet Payable Days 23 19 19 160 157 154
Share Capital 132.6 132.6 132.6 118.7 118.7 118.7 Net Working Capital Days 127 160 127 30 30 30
Reserves & Surplus 2,676.8 2,721.4 2,665.0 2,624.0 3,112.9 3,755.3
Total Shareholders Fund 2,809.4 2,854.0 2,797.6 2,742.7 3,231.6 3,874.0 Cash Flow Statement
Total Debt 1,741.8 1,284.3 1,252.1 962.5 364.3 214.6 Profit Before Tax 115.2 250.1 270.6 687.6 959.2 1,243.1
Deferred Tax Liabilities 380.5 343.3 217.8 217.8 217.8 217.8 Depreciation 386.1 379.3 259.7 272.2 309.7 322.2
Other Current Liabilities 3,386.1 3,308.5 3,994.2 5,468.5 6,153.7 6,715.6 Adjustments -98.8 351.9 -638.7 520.2 -457.2 -534.8
Total Liabilities 8,317.8 7,790.1 8,261.7 9,391.5 9,967.4 11,022.0 Cash Flow from Operations 402.5 981.4 -108.3 1,480.0 811.7 1,030.6
Gross Block 4,123.7 4,190.6 2,957.0 3,257.0 3,357.0 3,457.0 Capital Expenditure -80.2 -48.7 -100.0 -300.0 -100.0 -100.0
Less: Accumulated D&A 767.9 1,145.6 1,405.3 1,677.6 1,987.3 2,309.5 Other Investment Activities 699.2 231.0 297.7 -525.0 281.4 -9.4
Net Block 3,355.8 3,045.0 1,551.7 1,579.4 1,369.7 1,147.5 Cash Flow from Investing 619.0 182.3 197.7 -825.0 181.4 -109.4
Capital Work in Progress 25.0 14.4 46.5 139.4 46.5 46.5 Changes in Equity 1.0 0.0 0.0 -390.0 0.0 0.0
Non Current Investment 218.5 151.8 126.9 126.9 126.9 126.9 Changes in Borrowings -963.7 -744.8 -32.2 -289.6 -598.2 -641.6
Long Term Loans & Advances 338.3 352.7 259.5 283.8 325.6 361.7 Dividend & DDT -16.0 -16.0 -14.8 -57.8 -94.0 -139.2
Net Current Assets 1,274.5 1,359.6 2,209.4 1,728.9 1,868.0 2,535.9 Cash Flow from Financing -978.7 -760.9 -47.1 -737.3 -692.2 -780.8
Other Non Current Assets 3,105.8 2,866.7 4,067.8 5,532.9 6,230.8 6,803.5 Net Cash Flow 42.8 402.8 42.3 -82.3 300.9 140.4
Total Assets 8,317.8 7,790.1 8,261.7 9,391.5 9,967.4 11,022.0 Opening Cash Balance 555.6 598.4 1,001.2 1,043.5 961.2 1,262.1
Closing Cash Balance 598.4 1,001.2 1,043.5 961.2 1,262.1 1,402.5
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Man Industries Ltd.
STOCK POINTER
Shareholding Pattern Rs.169 Cr during FY18-22E. Consequently, RoE and RoCE are also set to
%
improve to 15.6%(+576bps) and 17.3%(+646bps) respectively by FY22E.
Shareholder
Promoters 42.90
The stock is currently trading at the FY22 forwarded P/E of 2.0x. Despite
Institutional 20.35
the stock having high growth prospects the valuations continue to remain
Public 19.56 supressed given corporate governance issues. (These are enumerated in
Total 100.0 detail in the report). We have not rated the stock.
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
➢ Steel pipe manufacturers have added significant capacities in the
past few years in anticipation of strong domestic as well as export
demand and got stranded with spare capacity. With no significant
capacity addition due to entry barriers and a gradual improvement
in demand the capacity utilisation of pipe makers is expected to
improve.
➢ MIL seems well poised in the SAW pipe segment in Madhya
Pradesh with The Madhya Pradesh Urban Development Company’s
(MPUDC)-announcement of the implementation of a water supply
scheme at Betma, Depalpur and Gautampura Nagar Parishads in
Indore district, likely to fuel its order book due to its locational
advantage.
➢ To meet the growing demand for water for irrigation and drinking
purposes the emphasis of the National Water Development Agency
on River Linking projects can be a major growth driver for the water
sector.
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
MIL Annual Performance
500
Revenue in Rs Cr Figures in Rs Cr
4,000 80% 450
3,500 400
60%
3,000 350
2,500 40% 300
2,000 20% 250
1,500 200
0% 150
1,000
-20% 100
500
50
0 -40%
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E 0
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
Net Sales YoY Growth
EBITDA Margin PAT Margin Long-Term Borrowings Short Term Borrowings
9,654
93,146
7,841
84,163
68,349
67,941
67,536
67,200
6,085
66,128
6,030
5,974
5,757
5,165
3,620
FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
MIL’s financial performance in Rs Cr
Man Industries(India)Ltd Q3FY19 Q2FY19 YoY QoQ Q1FY19 Q4FY18 Q3FY18 Q2FY18 Q1FY18 Q4FY17 FY18 FY17 YoY
Net Sales 516 803 7.2% -35.8% 633 489 481 284 318 291 1,608 1,060 51.6%
Total Expenditure 494 718 7.6% -31.3% 570 428 459 269 294 280 1,483 1,012 46.5%
EBITDA (excl OI) 22 84 -0.3% -74.2% 62 62 22 16 24 11 125 48 157.7%
EBITDA Margin % 4.2% 10.5% 9.9% 12.6% 4.5% 5.5% 7.5% 3.7% 7.7% 4.6%
Depreciation 11 12 11.1% -8.8% 11 10 10 10 10 10 39 40 -2.1%
EBIT (excl OI) 11 72 -9.9% -85.2% 51 52 12 6 14 1 85 8 933.9%
EBIT (excl OI) Margin % 2.1% 9.0% 8.1% 10.6% 2.5% 2.0% 4.4% 0.2% 5.3% 0.8%
Other Income 27 -29 19.9% -194.1% 4 9 23 17 10 21 57 72 -21.5%
EBIT 38 43 9.7% -11.9% 56 60 35 23 24 22 142 81 76.2%
EBIT Margin % 7.4% 5.4% 8.8% 12.3% 7.2% 8.0% 7.4% 7.4% 8.8% 7.6%
Interest 16 18 55.0% -12.6% 18 14 10 9 10 7 43 36 18.5%
Exceptional Items 0 0 #DIV/0! #DIV/0! 0 -4 0 0 0 0 -4 0 #DIV/0!
PBT 22 25 -8.9% -11.4% 38 43 24 14 14 15 95 44 115.2%
PBT Margin 4.3% 3.1% 6.0% 8.7% 5.1% 4.8% 4.3% 5.0% 5.9% 4.2%
Tax 7 10 -9.1% -31.9% 13 16 7 4 4 3 32 11 195.0%
Tax Rate 30.4% 39.6% 33.4% 37.9% 30.5% 32.0% 27.0% 22.6% 33.2% 24.2%
PAT 16 15 -8.9% 2.0% 25 26 17 9 10 11 64 34 89.7%
PAT Margin % 3.0% 1.9% -15.0% 58.7% 4.0% 5.4% 3.5% 3.3% 3.2% 3.9% 4.0% 3.2%
Source: Company Reports & Ventura Research
Nov-18
Aug-18
May-13
May-17
May-18
May-19
Aug-13
Nov-13
May-14
Nov-14
May-15
Aug-14
Nov-15
May-16
Aug-15
Aug-16
Nov-16
Feb-17
Aug-17
Feb-18
Feb-19
Feb-14
Feb-15
Feb-16
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Financials and Projections for MIL
Figures are in Rs Cr FY17 FY18 FY19E FY20E FY21E FY22E Figures are in Rs Cr FY17 FY18 FY19E FY20E FY21E FY22E
Profit & Loss Statement Per Share Data
Net Sales 1,060.5 1,607.5 2,585.0 2,857.8 3,133.7 3,404.7 Adjusted EPS 5.9 11.2 16.1 23.7 26.4 29.5
% Change 51.6 60.8 10.6 9.7 8.6 Adjusted Cash EPS 12.9 18.0 18.0 20.0 22.0 22.0
Total Expenditure 1,012.2 1,483.0 2,363.6 2,605.0 2,855.6 3,101.5 Dividend Per Share 1.5 1.5 1.5 2.0 2.0 2.0
% Change 46.5 59.4 10.2 9.6 8.6 Free Cash Flow Per Share -16.8 -1.3 7.5 26.7 30.1 33.7
EBITDA 48.3 124.5 221.4 252.8 278.1 303.1 Cash Yield (%) -25.1 -1.9 11.3 39.8 45.0 50.3
EBITDA Margin (%) 4.6 7.7 8.6 8.8 8.9 8.9 Book Value Per Share 104.8 114.2 120.4 141.0 163.9 189.7
Depreciation 40.1 39.2 44.4 57.3 60.4 63.6
Depreciation to Net Block (%) 11.6 11.0 10.7 15.0 17.5 20.7 Capital, Liquidity & Return Ratios
EBIT 8.3 85.3 177.0 195.5 217.7 239.6 Total Debt to Equity (x) 0.2 0.2 0.2 0.2 0.2 0.1
EBIT Margin (%) 0.8 5.3 6.8 6.8 6.9 7.0 Current Ratio (x) 1.5 1.2 1.2 1.1 1.3 1.4
Other Income 72.4 56.8 3.0 12.1 15.7 16.3 Return on Equity (%) 5.6 9.8 13.3 16.8 16.1 15.6
Exceptional Items 0.0 -3.7 0.0 0.0 0.0 0.0 Return on Capital Employed (%) 1.1 10.8 11.4 12.3 13.6 17.3
Interest Expenses 36.3 43.0 51.6 57.8 54.9 56.8
Interest Coverage Ratio 0.2 2.0 3.4 3.4 4.0 4.2 Valuation Ratios
PBT 44.3 95.4 128.4 149.8 178.4 199.1 P/E 11.4 6.0 4.2 2.8 2.5 2.3
Tax Provisions 10.7 31.7 46.2 57.9 64.5 72.2 P/CEPS 5.2 3.7 3.7 3.4 3.0 3.0
Tax Rate (%) 24.2 33.2 36.0 38.7 36.2 36.3 P/BV 0.6 0.6 0.6 0.5 0.4 0.4
PAT 33.6 63.7 82.2 91.9 113.9 126.8 EV/Sales 0.5 0.3 0.2 0.2 0.2 0.2
PAT Margin (%) 3.2 4.0 3.2 3.2 3.6 3.7 EV/EBITDA 11.1 4.3 2.4 2.1 1.9 1.8
Min Int & Share of Assoc -0.0 0.0 9.5 43.3 36.6 41.7
Net Profit 33.6 63.7 91.7 135.2 150.6 168.6 Efficiency Ratios
Net Margin (%) 3.2 4.0 3.5 4.7 4.8 5.0 Receivable Days 111 85 74 74 74 74
Inventory Days 49 130 55 55 55 55
Balance Sheet Payable Days 94 177 150 150 150 150
Share Capital 28.6 28.6 28.6 28.6 28.6 28.6 Net Working Capital Days 66 39 39 39 39 39
Reserves & Surplus 569.7 623.6 658.7 776.5 907.6 1,054.4
Total Shareholders Fund 598.3 652.2 687.2 805.0 936.1 1,083.0 Cash Flow Statement
Total Debt 356.7 263.8 277.1 326.7 277.5 304.8 Profit Before Tax 44.3 95.3 91.7 132.8 157.6 175.6
Deferred Tax Liabilities 36.9 35.4 37.0 37.0 37.0 37.0 Depreciation 40.1 39.2 44.4 57.3 60.4 63.6
Other Current Liabilities 364.5 746.3 994.7 939.2 888.7 830.2 Working Capital Change -146.9 0.4 -131.0 193.0 -142.0 119.0
Total Liabilities 1,356.4 1,697.6 1,996.0 2,107.9 2,139.3 2,254.9 Cash Flow from Operations -74.8 132.0 130.0 135.0 138.0 151.0
Gross Block 423.0 471.6 574.2 599.2 624.2 649.2 Capital Expenditure -22.9 -110.5 0.0 0.0 0.0 0.0
Less: Accumulated D&A 77.5 116.2 160.2 217.5 278.0 341.5 Other Investment Activities 43.5 5.6 -1.8 -64.9 -88.7 -139.4
Net Block 345.6 355.4 414.0 381.7 346.3 307.7 Cash Flow from Investing 20.6 -104.9 -1.8 -64.9 -88.7 -139.4
Capital Work in Progress 5.3 63.0 5.0 3.0 3.0 3.0 Changes in Share Capital 0.0 0.0 0.0 0.0 0.0 0.0
Non Current Investment 103.0 102.3 131.0 131.0 131.0 131.0 Changes in Borrowings 89.6 -93.0 13.3 49.7 -49.3 27.4
Long Term Loans & Advances 30.9 82.4 36.2 40.0 43.9 47.7 Dividend & DDT -8.6 -8.6 -11.8 -17.4 -19.4 -21.7
Net Current Assets 289.1 186.0 267.4 102.8 325.6 400.0 Cash Flow from Financing 41.2 -115.2 -69.6 -25.3 -28.3 -14.2
Other Non Current Assets 582.6 908.5 1,142.4 1,449.4 1,289.5 1,365.6 Net Cash Flow -13.0 -88.1 58.6 44.7 59.0 -2.6
Total Assets 1,356.4 1,697.6 1,996.0 2,107.9 2,139.3 2,254.9 Opening Cash Balance 167.7 154.8 66.7 125.2 169.9 228.9
Closing Cash Balance 154.8 66.7 125.2 169.9 228.9 226.4
This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.
Jindal SAW Ltd.
STOCK POINTER
Shareholding Pattern management indicated that sustaining these margins would be an arduous
%
task given the increasing share of fixed price bulk contracts for large
Shareholder
projects. Management is upbeat on sustaining the EBITDA margin of more
Promoters 63.01
than 11% in the coming years. Return ratios – RoE and RoCE are also set
Institutional 13.24
to improve to 9.9% (+287 bps) and 12.4% (+511 bps) respectively by FY22
Public 23.75
Total 100.0 Poor performance of its unrelated diversifications into the sectors of
shipping, mining & pallet manufacturing has led to company falling into a
JSAW vs. Sensex debt trap at consolidated level. As of Mar 18, consolidated net debt of the
company stood at Rs.6,166 Cr, while the consolidated EBITDA of FY18 was
200 50,000
a paltry Rs.947 Cr, leading to a net debt to EBITDA of 6.5x. While pressures
40,000
150
from the poor performance of the subsidiaries ails at the consolidated
30,000
100 level, the financial profile has improved considerably for the standalone
20,000
50
parent entity. JSAW reduced the standalone debt from Rs.4,218 Cr in Mar
10,000
2018 to Rs.3,645 Cr in Sep 2018, and maintained its EBITDA margins well
0 0
Apr-16 Apr-17 Apr-18 Apr-19 above the level of 13.5% over the same period. Easing debt burden and
JSAW Sensex
strong margin profile improved interest coverage from 1.89x to 2.05x
during H1FY19. JSAW management has guided for the net debt to come
down to Rs.2,500 Cr by FY21 due to annual debt repayment of Rs.250 Cr.
Key Financials (in ₹ crores)
EBITDA Margin PAT Margin EPS BV RoE RoCE P/E P/BV EV/EBITDA
Sales EBITDA PAT
(%) (%) ₹ ₹ (%) (%) (x) (x) (x)
FY18 7,287 992 415 13.6 5.7 13.0 185.0 7.0 7.3 5.8 0.4 6.6
FY19E 10,078 1,307 541 13.0 5.4 16.9 200.2 8.5 9.4 4.4 0.4 5.1
JSAW capacities and utilization
FY20E 11,591 1,295 502 11.2 4.3 15.7 214.3 7.3 9.3 4.8 0.3 5.3
FY21E 12,896 1,453 651 11.3 5.0 20.4 231.6 8.8 10.9 3.7 0.3 4.8
- 62 - Monday 20th May, 2019
FY22E 14,044 1,583 795 11.3 5.7 24.9 251.5 9.9 12.4 3.0 0.3 4.4
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FY18 FY19E FY20E FY21E FY22E
SAW pipe capacity (in MTPA) 20,00,000 20,00,000 20,00,000 20,00,000 20,00,000
SAW pipe sales volume (in MT) 5,30,360 6,36,432 7,47,808 8,59,979 9,45,977
SAW capacity utilization (%) 26.5 31.8 37.4 43.0 47.3
Seamless pipe capacity (in MTPA) 2,50,000 2,50,000 2,50,000 2,50,000 2,50,000
Seamless pipe sales volume (in MT) 1,68,100 1,69,781 1,95,248 2,14,773 2,36,250
Seamless capacity utilization (%) 67.2 67.9 78.1 85.9 94.5
DI pipe & Pig Iron capacity (in MTPA) 10,00,000 10,00,000 10,00,000 10,00,000 10,00,000
DI pipe & Pig Iron sales volume (in MT) 4,73,400 5,44,410 6,26,072 6,88,679 7,57,547
DI pipe & Pig Iron capacity utilization (%) 47.3 54.4 62.6 68.9 75.8
Blended Average Realization (Rs/Ton) 62,180 74,616 73,870 73,131 72,400
Blended Average EBITDA/Ton (in Rs) 8,465 9,677 8,251 8,242 8,159
At the CMP of Rs.75, the stock currently trades at the price to standalone
BV of 0.33x FY22 earnings. Subsidiaries form ~10% to the overall
business of JSAW and have negative net-worth.
We initiate with a BUY for a price objective of Rs.119 (0.5x FY22), which
represents an upside potential of 59%.
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JSAW Annual Performance
Revenue in Rs Cr Figures in Rs Cr
16,000 50% 5,000
14,000 40% 4,500
12,000 4,000
30% 3,500
10,000
20% 3,000
8,000 2,500
10%
6,000 2,000
4,000 0% 1,500
1,000
2,000 -10%
500
0 -20% 0
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
Net Sales YoY Growth
LT Borrowing ST Borrowing
EBITDA Margin PAT Margin
9,677
75,556
74,616
73,870
73,131
72,400
9,240
63,832
62,180
54,767
8,465
8,414
8,287
8,251
8,242
8,159
FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22
18%
Return Ratios Figures in Rs Cr
16% 1,500
14%
1,000
12%
10% 500
8%
0
6%
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
4% (500)
2%
(1,000)
0%
FY15 FY16 FY17 FY18 FY19E FY20E FY21E FY22E
(1,500)
RoE RoIC RoCE CFO FCFF
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JSAW’s financial performance in Rs Cr
200
150
100
50
0
Jul-13
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Jan-18
Apr-18
Apr-19
Jan-14
Jan-15
Jan-16
Jan-17
Jan-19
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
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Historical Financials for JSAW
Figures are in Rs Cr FY17 FY18 FY19E FY20E FY21E FY22E Figures are in Rs Cr FY17 FY18 FY19E FY20E FY21E FY22E
Profit & Loss Statement Per Share Data
Net Sales 5,695.7 7,286.6 10,077.8 11,591.1 12,896.1 14,043.9 Adjusted EPS 9.6 12.1 16.9 15.7 20.4 24.9
% Change 27.9 38.3 15.0 11.3 8.9 Adjusted Cash EPS 16.8 20.1 25.8 24.7 29.4 34.0
Total Expenditure 4,833.9 6,294.6 8,770.7 10,296.4 11,442.8 12,461.2 Dividend Per Share 1.0 1.1 1.7 1.6 3.1 5.0
% Change 30.2 39.3 17.4 11.1 8.9 Free Cash Flow Per Share 29.1 4.0 -28.6 -6.4 0.7 6.3
EBITDA 861.8 992.0 1,307.1 1,294.7 1,453.3 1,582.7 Cash Yield (%) 38.8 5.3 -38.2 -8.6 0.9 8.4
EBITDA Margin (%) 15.1 13.6 13.0 11.2 11.3 11.3 Book Value Per Share 174.0 184.9 200.2 214.3 231.6 251.5
Depreciation 229.4 256.2 283.0 285.8 288.7 291.6
Depreciation to Net Block 4.0 4.5 5.0 5.1 5.2 5.3 Capital, Liquidity & Return Ratios
EBIT 632.4 735.8 1,024.1 1,008.9 1,164.7 1,291.1 Total Debt to Equity (x) 0.7 0.7 0.7 0.6 0.4 0.3
EBIT Margin (%) 11.1 10.1 10.2 8.7 9.0 9.2 Current Ratio (x) 1.4 1.5 1.4 1.5 1.5 1.7
Other Income 249.4 260.9 260.0 279.5 295.3 308.4 Return on Equity (%) 6.1 7.0 8.5 7.3 8.8 9.9
Exceptional Items -31.2 -29.1 0.0 0.0 0.0 0.0 Return on Capital Employed (%) 6.8 7.3 9.4 9.3 10.9 12.4
Interest Expenses 379.9 419.7 500.0 548.2 563.8 572.2
Interest Coverage Ratio 1.7 1.8 2.0 1.8 2.1 2.3 Valuation Ratios
PBT 470.7 547.9 784.1 740.1 896.1 1,027.3 P/E 7.8 6.2 4.4 4.8 3.7 3.0
Tax Provisions 163.0 162.1 243.1 270.5 350.4 427.9 P/CEPS 4.5 3.7 2.9 3.0 2.6 2.2
Tax Rate (%) 34.6 29.6 31.0 36.5 39.1 41.7 P/BV 0.4 0.4 0.4 0.3 0.3 0.3
PAT 307.7 385.8 541.0 469.7 545.7 599.3 EV/Sales 1.1 0.9 0.6 0.5 0.4 0.3
PAT Margin (%) 5.4 5.3 5.4 4.1 4.2 4.3 EV/EBITDA 7.1 6.6 4.7 4.5 3.7 2.9
Min Int & Share of Assoc -0.0 0.0 0.0 32.6 105.1 195.4
Net Profit 307.7 385.8 541.0 502.3 650.8 794.7 Efficiency Ratios
Net Margin (%) 5.4 5.3 5.4 4.3 5.0 5.7 Receivable Days 86 71 80 75 75 75
Inventory Days 111 93 175 175 175 175
Balance Sheet Payable Days 22 19 40 40 40 40
Share Capital 64.0 64.0 64.0 64.0 64.0 64.0 Net Working Capital Days 175 145 215 210 210 210
Reserves & Surplus 5,499.9 5,849.1 6,336.0 6,788.0 7,341.2 7,977.0
Total Shareholders Fund 5,563.9 5,913.0 6,399.9 6,852.0 7,405.2 8,041.0 Cash Flow Statement
Total Debt 3,752.9 4,218.5 4,483.6 3,988.4 3,276.8 2,391.9 Profit Before Tax 470.7 547.9 784.1 772.8 1,001.2 1,222.7
Deferred Tax Liabilities 408.7 459.3 459.3 459.3 459.3 459.3 Depreciation 229.4 256.2 283.0 285.8 288.7 291.6
Other Current Liabilities 1,211.1 1,192.0 1,711.5 2,078.8 2,413.5 2,742.6 Adjustments 616.7 -230.7 -774.1 -337.0 -290.8 -250.3
Total Liabilities 10,936.6 11,782.8 13,054.3 13,378.5 13,554.8 13,634.8 Cash Flow from Operations 1,316.8 573.4 293.0 721.6 999.1 1,263.9
Gross Block 6,435.2 6,501.0 6,751.0 7,001.0 7,251.0 7,501.0 Capital Expenditure -151.4 -194.0 -250.0 -250.0 -250.0 -250.0
Less: Accumulated D&A 662.2 863.4 1,146.4 1,432.2 1,720.9 2,012.5 Other Investment Activities 40.4 -259.6 499.3 -176.8 -152.5 -134.1
Net Block 5,773.0 5,637.5 5,604.5 5,568.7 5,530.0 5,488.5 Cash Flow from Investing -111.0 -453.6 249.3 -426.8 -402.5 -384.1
Capital Work in Progress 65.5 107.8 125.1 125.1 125.1 125.1 Changes in Equity 3.0 0.0 0.0 0.0 0.0 0.0
Non Current Investment 591.5 648.6 648.6 648.6 648.6 648.6 Changes in Borrowings -1,242.5 -101.7 265.0 -495.1 -711.6 -884.9
Long Term Loans & Advances 222.0 268.3 371.1 426.8 474.8 517.1 Dividend & DDT -38.1 -35.2 -54.1 -50.2 -97.6 -158.9
Net Current Assets 1,255.5 1,719.1 1,867.6 2,074.4 2,385.3 2,785.2 Cash Flow from Financing -1,277.6 -136.9 210.9 -545.4 -809.2 -1,043.9
Other Non Current Assets 3,029.0 3,401.5 4,437.5 4,534.9 4,391.0 4,070.4 Net Cash Flow -71.7 -17.1 753.3 -250.5 -212.6 -164.0
Total Assets 10,936.6 11,782.8 13,054.3 13,378.5 13,554.8 13,634.8 Opening Cash Balance 124.0 52.3 35.2 788.5 537.9 325.4
Closing Cash Balance 52.3 35.2 788.5 537.9 325.4 161.4
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Annexure – Steel pipe manufacturing process
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ERW pipe manufacturing process
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