Description
company overview, major competitors, major customers, competitive advantage of Maharashtra Seamless Ltd. It also gives major, minor concerns for the company as well as valuation for the company.
Maharashtra Seamless Ltd.
Evolutionary Arms Race
Maharashtra Seamless Ltd.
Stock Codes Bloomberg Reuters BSE NSE BSE Group MHS.IN MHSM.BO 500265 MAHSEAMLES B
Institutions 30%
Shareholding Pattern(March 2010)
Others 6%
Face Value
Stock Data 52W H\L CMP Rs
Rs. 5.00
Promoters 54%
Indian Public 10%
455/326 357
Mkt Cap.
Free Float
Rs. 2,849 Cr.
46%
Industry Overview
About seamless tubes
• Preferred over welded tubes where the following parameters are important:
– Strength
– Resistance to corrosion
– Product life
MSL manufactures both seamless as well as ERW tubes
Key Drivers
• Domestic gas availability is likely to increase • High crude oil prices
– Increased drilling/production • Cheapest mode of transport – Laying of pipelines across the country (GAIL,IOCL) • Govt. focus on power sector
Major competitors
• Choksi tubes • Himtubes • Remi Metals Gujarat
MSL is by far the leader in the industry
Company Overview
• Is the flagship company of the DP Jindal group • Leaders in Indian pipe industry • JV with US-based Hydril (now Tenaris) for technological know-how • Sole Indian manufacturer for high diameter seamless and ERW pipes
Company Overview
• Cash rich and debt free • Large order book • Capacity expansion
– Purchased 2 lakh MT seamless plant from Romania
• Current capacity utilisation of 55-60%
Company Overview
• Anti-dumping duty had been imposed on Chinese pipes in US and European markets
– Margins increased from 18-19% to 25-26%
• Similar anti-dumping duty likely to be imposed in India as well
Competitive Advantage
• • • • • Higher quality products Advanced technology Lower costs Can execute large critical orders in time Only company to manufacture certain sizes Industry leading profitability
Major customers
• Power sector
– BHEL, Techpro Ashtech, BGR Energy, MECON etc.
• Refineries and Petrochemical
– IOCL, ONGC, Essar, MRPL, HP Mittal Energy etc.
• Infrastructure
– TCS IT Park (Siruseri), Wankhede stadium etc.
DuPont analysis
Mar-10
PBIDT/Sales(%) Sales/Net Assets PBDIT/Net Assets PAT/PBIDT(%) Net Assets/Net Worth ROE(%) 26.78 0.71 0.19 62.85 1.53 19.93
Mar-09
18.98 1.57 0.3 62.2 1.06 21.46
Mar-08
19.69 1.37 0.27 60.43 1.09 19.35
Mar-07
24.51 1.47 0.36 62.8 1.12 34.96
Mar-06
21.01 1.19 0.25 61.48 2.19 38.28
Revaluation of assets
• In FY 10 the net assets have increased from Rs 280 Cr to Rs 1000 Cr • Revaluation was mainly of Plant & Machinery and not of Land & Building • Equipment is regularly maintained and still has a long life
– Company is 20 years old – Second hand equipment (Romanian plant)
ROCE vs Adjusted ROCE
(Adjusted for revaluation of assets)
0.40 0.35
0.36
0.30
0.30 0.27 0.25 0.21 0.19 0.19 0.17
0.25
0.20
ROCE ROCE adjusted
0.14
0.15
0.10
0.05
0.00 2010 2009 2008 2007 2006
Valuation
• Enterprise value = Rs 2200 • 5 year average OCF = Rs 335 Cr
EV/OCF = 6.56
• Assuming the company should be worth at least as much as a AAA bond yielding 10% – Minimum EV should be Rs 3350 Cr
What can prove our hypothesis wrong?
Major concerns
• Commodity business
• BUT MSL’s competitive advantage acts as a barrier
• Very long product life
– Sales will drop in the long term
• BUT energy, power and infrastructure sectors are likely to grow for a long time
• Volatility in steel prices
– Might hit operating margins
• BUT this has not happened in the past
Major concerns
• Anti-dumping duty might be lifted
– Exports will reduce, margins will get hit
• BUT company had healthy OPM even before the ban
• Re-imposition of export tax by the Govt. • Most of its domestic clients are PSU’s
– What if the Govt. decides to build its own pipe manufacturing plant?
Minor concerns
Broken promises??
• The company has every year announced plans to start construction of its steel billet plant • No progress has been made since 6 years
– There were probably genuine reasons but ….
How credible are the management’s other statements?
Other People’s Money
• Management invested Rs 50 Cr in renewable energy • This segment has shown almost no profit • It is only a small amount in the greater scheme of things but…
Is the management likely to squander the investor’s money?
Conclusion
• MSL has managed to build a moat around itself in a commodity industry
– No Indian competitor even comes close
• The industry is likely to see growth in the future with MSL at the forefront of it
• The company is available at an earnings yield of just 6.56 (EV/avg. OCF)
Thank You
doc_914184679.pptx
company overview, major competitors, major customers, competitive advantage of Maharashtra Seamless Ltd. It also gives major, minor concerns for the company as well as valuation for the company.
Maharashtra Seamless Ltd.
Evolutionary Arms Race
Maharashtra Seamless Ltd.
Stock Codes Bloomberg Reuters BSE NSE BSE Group MHS.IN MHSM.BO 500265 MAHSEAMLES B
Institutions 30%
Shareholding Pattern(March 2010)
Others 6%
Face Value
Stock Data 52W H\L CMP Rs
Rs. 5.00
Promoters 54%
Indian Public 10%
455/326 357
Mkt Cap.
Free Float
Rs. 2,849 Cr.
46%
Industry Overview
About seamless tubes
• Preferred over welded tubes where the following parameters are important:
– Strength
– Resistance to corrosion
– Product life
MSL manufactures both seamless as well as ERW tubes
Key Drivers
• Domestic gas availability is likely to increase • High crude oil prices
– Increased drilling/production • Cheapest mode of transport – Laying of pipelines across the country (GAIL,IOCL) • Govt. focus on power sector
Major competitors
• Choksi tubes • Himtubes • Remi Metals Gujarat
MSL is by far the leader in the industry
Company Overview
• Is the flagship company of the DP Jindal group • Leaders in Indian pipe industry • JV with US-based Hydril (now Tenaris) for technological know-how • Sole Indian manufacturer for high diameter seamless and ERW pipes
Company Overview
• Cash rich and debt free • Large order book • Capacity expansion
– Purchased 2 lakh MT seamless plant from Romania
• Current capacity utilisation of 55-60%
Company Overview
• Anti-dumping duty had been imposed on Chinese pipes in US and European markets
– Margins increased from 18-19% to 25-26%
• Similar anti-dumping duty likely to be imposed in India as well
Competitive Advantage
• • • • • Higher quality products Advanced technology Lower costs Can execute large critical orders in time Only company to manufacture certain sizes Industry leading profitability
Major customers
• Power sector
– BHEL, Techpro Ashtech, BGR Energy, MECON etc.
• Refineries and Petrochemical
– IOCL, ONGC, Essar, MRPL, HP Mittal Energy etc.
• Infrastructure
– TCS IT Park (Siruseri), Wankhede stadium etc.
DuPont analysis
Mar-10
PBIDT/Sales(%) Sales/Net Assets PBDIT/Net Assets PAT/PBIDT(%) Net Assets/Net Worth ROE(%) 26.78 0.71 0.19 62.85 1.53 19.93
Mar-09
18.98 1.57 0.3 62.2 1.06 21.46
Mar-08
19.69 1.37 0.27 60.43 1.09 19.35
Mar-07
24.51 1.47 0.36 62.8 1.12 34.96
Mar-06
21.01 1.19 0.25 61.48 2.19 38.28
Revaluation of assets
• In FY 10 the net assets have increased from Rs 280 Cr to Rs 1000 Cr • Revaluation was mainly of Plant & Machinery and not of Land & Building • Equipment is regularly maintained and still has a long life
– Company is 20 years old – Second hand equipment (Romanian plant)
ROCE vs Adjusted ROCE
(Adjusted for revaluation of assets)
0.40 0.35
0.36
0.30
0.30 0.27 0.25 0.21 0.19 0.19 0.17
0.25
0.20
ROCE ROCE adjusted
0.14
0.15
0.10
0.05
0.00 2010 2009 2008 2007 2006
Valuation
• Enterprise value = Rs 2200 • 5 year average OCF = Rs 335 Cr
EV/OCF = 6.56
• Assuming the company should be worth at least as much as a AAA bond yielding 10% – Minimum EV should be Rs 3350 Cr
What can prove our hypothesis wrong?
Major concerns
• Commodity business
• BUT MSL’s competitive advantage acts as a barrier
• Very long product life
– Sales will drop in the long term
• BUT energy, power and infrastructure sectors are likely to grow for a long time
• Volatility in steel prices
– Might hit operating margins
• BUT this has not happened in the past
Major concerns
• Anti-dumping duty might be lifted
– Exports will reduce, margins will get hit
• BUT company had healthy OPM even before the ban
• Re-imposition of export tax by the Govt. • Most of its domestic clients are PSU’s
– What if the Govt. decides to build its own pipe manufacturing plant?
Minor concerns
Broken promises??
• The company has every year announced plans to start construction of its steel billet plant • No progress has been made since 6 years
– There were probably genuine reasons but ….
How credible are the management’s other statements?
Other People’s Money
• Management invested Rs 50 Cr in renewable energy • This segment has shown almost no profit • It is only a small amount in the greater scheme of things but…
Is the management likely to squander the investor’s money?
Conclusion
• MSL has managed to build a moat around itself in a commodity industry
– No Indian competitor even comes close
• The industry is likely to see growth in the future with MSL at the forefront of it
• The company is available at an earnings yield of just 6.56 (EV/avg. OCF)
Thank You
doc_914184679.pptx