INSTITUTIONAL EQUITY RESEARCH

Maharashtra Seamless (MHS IN)

To be a beneficiary of higher crude prices
03 June 2022
INDIA | METALS | Initiating Coverage
Maharashtra Seamless Ltd (MHS) is the flagship company of the D.P. Jindal Group. Its plants
are located in Raigad, Maharashtra, with an annual capacity of 650,000 tonnes for seamless
BUY
pipes (450,000 tonnes in standalone and 200,000 tonnes in subsidiary United Seamless) and CMP RS 557
125,000 tonnes for ERW pipes. MHS caters to the oil & gas sector, power, automotive and TARGET RS 685 (+23%)
general engineering industries. MHS has also diversified into power generation with a 7 SEBI CATEGORY: SMALL CAP
MW wind power capacity and 53 MW of solar power. In 2014, the company acquired a 20%
stake in an iron ore mine in Brazil (non-operational and value has been written down). MHS COMPANY DATA
O/S SHARES (MN) : 67
purchased United Seamless in IBC bidding for Rs 4.7bn in 2019. It also acquired a rig from a MARKET CAP (RSBN) : 37
sister concern for US$ 100mn. MARKET CAP (USDBN) : 0.5
52 - WK HI/LO (RS) : 630 / 285
LIQUIDITY 3M (USDMN) : 1
Global rig counts staged a sharp recovery aided by higher crude prices: Spot crude has PAR VALUE (RS) : 5
already reached near 8-year high levels of over US$ 100/b. Considering the geopolitical
situation, crude is unlikely to come down substantially from current levels, which aided a 40% SHARE HOLDING PATTERN, %
yoy increase in the global rig count (the US rig count was a driving factor, with 259% yoy Mar 22 Dec 21 Sep 21
PROMOTERS : 67.0 64.9 63.8
increase). MHS derives over 80% of its EBITDA (standalone) from seamless pipes, which has a DII : 3.4 3.1 4.4
high dependence on rig count. We expect crude to remain higher for a longer period, which FII : 1.1 1.0 1.0
should translate into extended periods of good volumes. OTHERS : 28.4 31.0 30.8

PRICE PERFORMANCE, %
Order-book visibility improving: Revival in oil prices and rig counts have started to reflect in
1MTH 3MTH 1YR
order books. Since 1QFY21 (covid impacted quarter), the total order book of the industry/of ABS (7.5) 8.5 91.9
MHS jumped 170% to Rs 17bn driven by seamless (rigs) as well as a good amount of ERW REL TO BSE (5.5) 7.2 85.0
pipes (oil/gas pipeline) orders. Though the current order has an execution timeline of 4-5
months only, the rise in rig counts have a 3/6-month lag in terms of order-book translation, PRICE VS SENSEX
so we expect order book to keep improving from current levels. With better order booking,
180
margins also start improving, but with a lag. 160
140
Ramp up of United Seamless is EPS accretive: MHS acquired United Seamless (USM) for Rs 120
100
4.8bn in February 2019; it has an operating capacity of 200KT, in Andhra Pradesh. USM
80
produced and sold c.30Kt of pipes in FY21, but in FY22 alone, sales volumes jumped to 73Kt 60
with EBITDA at Rs 930mn, ending 4QFY22 run rate l with a 100Kt annual volume run rate; US$ 40
Jun-19 Jun-20 Jun-21 Jun-22
1.4bn EBITDA, implying a further 35-40% improvement in FY23 volumes. It is already PBT
MHS IN BSE Sensex
positive and a further increase in capacities would add to MHS’ EPS.
KEY FINANCIALS
To become a net-cash company again in FY23: MHS was a net cash company for the better
Rs mn FY22 FY23E FY24E
part of the last decade, but debt peaked in FY19 due to USM’ acquisition, and investment in
Net Sales 42,003 45,466 47,186
the iron-ore mine. Later, the company also took over the rig business, paying US$ 50mn more. EBITDA 6,122 7,532 8,037
However, since then, the management is consciously not investing in non-core businesses or Net Profit 4,333 5,331 5,640
supporting sister concerns, and has thus managed to bring down its debt to Rs 1bn in FY22. EPS, Rs 64.7 79.6 84.2
We expect it to become net cash positive in FY23, and accumulate a net cash balance of c.Rs PER, x 8.5 7.0 6.6
6bn by FY24, despite higher working capital requirements. EV/EBITDA, x 7.0 4.9 3.9
PBV, x 1.0 0.9 0.8
Key risks ROE, % 11.7 12.7 12.0
• Fall in oil prices and subsequently in rig counts
• Any further investment in non-core business
Vikash Singh, Research Analyst
• Potential exposure from cheap imports from China/CIS (+9199206 63955) viksingh@phillipcapital.in

Page | 48 | PHILLIPCAPITAL INDIA RESEARCH

Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research
is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt
Securities Inc, an SEC registered and FINRA-member broker-dealer. Powered by EQUITEC
 MAHARASHTRA SEAMLESS INITIATING COVERAGE

Outlook and valuation

Maharashtra Seamless derives a majority of its profits from its seamless division,
whose outlook remains strong, considering current energy prices and increasing rig
counts across the globe. We believe energy prices will remain higher vs. average past-
five-year levels, which will push demand, as countries will be looking to produce higher
to meet demand, ultimately benefitting Seamless business. USM also has ERW
segment which plays a supporting role in the EBITDA improvement. At present rig
business is also self-sustainable as new rates will fetch US$ 23,000/day (net) vs US$
11,000/day previously. Overall, we feel that EBITDA would remain strong while MHS
will again turn to net cash by early FY23.

We are valuing the company at 5.0x FY24 EV/EBITDA and arrived at a target price of
Rs 685.

Base assumptions
Summary FY20 FY21 FY22 FY23e FY24e
STANDALONE
Volumes - Tonnes
Seamless 283,000 235,000 315,000 325,000 340,000
ERW 66,000 63,000 80,000 88,000 90,000
EBITDA/Tonne
Seamless 16,659 12,186 12,424 13,400 13,500
ERW 5,354 13,425 9,098 7,500 7,500

Revenue 26,168 22,251 35,561 36,009 37,384

EBITDA 5,514 4,464 5,395 6,056 6,391
United Seamless
Volumes 30,000 70,000 110,000 120,000
EBITDA/tonne 9,200 13,250 13,418 13,715
Revenue 2,250 6,335 9,457 9,801
EBITDA 276 928 1,476 1,646
Source: Company, PhillipCapital India Research

One-year forward EV/EBITDA One-year forward PER

1 year Forward EV/EBITDA 1yr fwd P/E
62 (Rs bn) 16 `+1 SD 14.62
14
52
8x 12
42 10
6x 8 AVG 7.8
32
6
4x
22 4
`-1 SD 0.98
2x 2
12
0
Sep-16

Sep-17

Sep-18

Sep-19

Sep-20

Sep-21
May-17

May-18

May-19

May-20

May-21

May-22
Jan-17

Jan-18

Jan-19

Jan-20

Jan-21

Jan-22

2
May/10 May/12 May/14 May/16 May/18 May/20 May/22

Source: Company, PhillipCapital India Research

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 MAHARASHTRA SEAMLESS INITIATING COVERAGE

Investment rationale
Oil prices at nearly eight-year highs; expecting 2022 to average at US$ 100/b…
After years of low prices, crude prices started to bounce back from April 2022, as
market demand recovered faster-than-anticipated from the pandemic, partially
supported by the stimulus. Oil prices breached US$ 100/t levels after a gap of almost
eight years because of the Russian-Ukraine crisis, amid an already tight energy market.
We expect Russian sanctions to continue for long, which should keep energy prices
higher in the medium term. The World Bank estimates brent crude to average at US$
100/b in 2022, US$ 92/b in 2023, and US$ 80/b in 2024 – prices will remain higher than
their yearly averages since 2015.

Brent crude
Brent Crude Yearly Avg.
140

120

100

80

60

40

20

-
Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Sep-19

Sep-20

Sep-21
May-14

May-15

May-16

May-17

May-18

May-19

May-20

May-21

May-22
Jan-15

Jan-16

Jan-17

Jan-18

Jan-19

Jan-20

Jan-21

Jan-22

Source: Company, PhillipCapital India Research

…which drove rig counts higher – seamless pipes to benefit more

The oil and gas sector has seen years of under-investment as the energy prices were
subdued and the global preference was shifting towards non-fossil fuels. However,
recent energy tightness, further aggravated by the Russia war, reminded the world that
it will take years to shift from fossil fuel and that near-to-mid-term tightness in the
market will continue. This boosted investments in the sector. US rig counts jumped
59% yoy to 696 while RoW rig counts jumped 28%, up 40% overall. Usually, seamless
pipes demand has a direct correlation with rig count and with price improvement,
deeper and expensive oil wells come back in production – these require more pipes.
Thus, increasing rig counts have a higher impact on pipe demand in the medium term.

Rig count trends

2,500 US RoW

2,000

1,500

1,000

500

-
Dec-15

Dec-16

Dec-17

Dec-18

Dec-19

Dec-20

Dec-21
Aug-21
Apr-16
Aug-16

Apr-17
Aug-17

Apr-18
Aug-18

Apr-19
Aug-19

Apr-20
Aug-20

Apr-21

Apr-22

Source: Company, PhillipCapital India Research

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 MAHARASHTRA SEAMLESS INITIATING COVERAGE

Order book visibility improving; margins may improve

The revival in oil prices and rig counts have started to reflect in the order books. Since
1QFY21 (covid-impacted quarter), MHS’ total order book jumped 170% to Rs 17bn
driven by seamless (rigs) as well as good amount of ERW (Electric Resistance Welded
pipe) pipes (oil/gas pipeline) orders. Though the current order has an execution
timeline of 4-5 months only, the rise in rig counts have a 3/6-month lag in terms of
order-book translation, and therefore, we expect order book to continue to improve
from current levels, despite strong execution.

Order book – Rs bn

18
16
14
12
10
8
6
4
2
0
1Q19

2Q19

3Q19

4Q19

1Q20

2Q20

3Q20

4Q20

1Q21

2Q21

3Q21

4Q21

1Q22

2Q22

3Q22

4Q22

Source: Company, PhillipCapital India Research

Consolidating its market leadership

The Indian seamless pipes market has a total capacity of 1.7-1.8mn tonnes, with over
90% capacity controlled by only four players. However, the effective capacity is c.1.1mn
tonnes, as c.0.6mn tonnes of capacity is either underutilized or not functioning due to
the parent being bankrupt. Therefore, current effective capacity is only moderately
higher than current demand.

Indian seamless pipe demand should be at 0.8-0.9mn tonnes. Maharashtra Seamless

has a market share of c.55% on effective capacity in seamless pipes and c.25% in the
API-grade ERW pipes segment. In seamless pipes, MHS has managed to increase its
market share from 30-35% 4-5 years ago, through higher utilization of its existing
facility as well as by acquiring United Seamless. We expect MHS to maintain its
leadership position in this sub-segment.

Market share by total capacity

Others, 6%

ISMT, 29% MHS, 40%

Jindal SAW, 25%

Source: Company, PhillipCapital India Research

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 MAHARASHTRA SEAMLESS INITIATING COVERAGE

Volumes/EBITDA to register 9%/13% CAGR over FY22-24

We expect seamless volumes (including USM) to see 9% CAGR, with a majority of the
growth coming from ramp up in USM. We expect MHS’ volumes to grow 5% CAGR with
potential for further upside. We have also built in EBITDA/t of Rs 13,200/t in MHS and
Rs 13,400/t for USM, which again has upside potential, as in the past, the company has
managed to report over Rs 20,000/t as well, and thus on slight conservative estimates,
we see EBITDA CAGR of 13%, which could easily jump to 20% in case good markets
persist.

Ramp up of United Seamless is EPS accretive

MHS acquired United Seamless (USM) for Rs 4.8bn in February 2019. However, the
company managed to take possession and start the facility only by 2021, due to covid
and court cases. United Seamless operates a 200KT capacity mill at Andhra Pradesh,
expandable up to 350Kt, with a planned capex of Rs 1.5bn in the wings.

USM produced and sold c.30Kt of pipes in FY21. However, in FY22, this number jumped
to 72Kt and 73Kt with EBITDA at Rs 930mn. Given the 4Q run rate there is strong
potential of 35-40% rise in volumes on an annualised basis and c.50% improvement in
EBITDA in FY23. It is already PBT positive and a further increase in capacities would add
to MHS’ EPS.

USM’s expected EBITDA to jump 2x

Rs mn FY22 FY23 FY24
Volumes (tonnes) 70,000 110,000 120,000
Revenues 6,335 9,457 9,801
EBITDA 928 1,476 1,646
EBITDA/t – Rs 13,250 13,418 13,715
PBT 748 1,308 1,485
Source: Company, PhillipCapital India Research

ERW segment to do well due to city gas distribution capex

The ERW segment contributed c.21% of EBITDA in FY21 and 19% in 9MFY22. API grade
ERW pipes are largely used in branch oil-and-gas pipelines and city-gas distribution.
Considering India’s plan to add over 16,000 km of oil/gas pipeline and cover 70% of the
population under city gas distribution, we expect ERW to keep performing consistently.

Segment-wise EBITDA contribution

Seamless ERW Others
100%

80%

60%

40%

20%

0%
FY19 FY20 FY21 FY22 FY23e FY24e
-20%

Source: Company, PhillipCapital India Research

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 MAHARASHTRA SEAMLESS INITIATING COVERAGE

Better capital allocation and assets utilisation to strengthen the balance sheet
MHS was a net-cash company for a major part of the last decade. However, the
company choose to invest Rs 6bn in iron ore mines in Brazil (assets written off), US$
50mn to take over one rig from a sister concern, and Rs 4.7bn for purchase of USM. All
these steps have led to MHS becoming a net debt company with net debt peaking out
at Rs 8bn in FY20. However, the management is now conscious regarding capital
allocation and indicated that it would not invest in non-core businesses henceforth,
and with USM’s assets utilization improving, it would use a larger portion of cash for
debt reduction in the existing business. We expect the company to become net cash in
1HFY23 itself, from a current net-debt position of Rs 1bn.

Net debt/(cash) – Rs mn ICD reduced meaningfully – Rs mn

12000 Net Debt Related party Others

10000
10000
8000
8000
6000
Rs mn

4000 6000
2000
0 4000
-2000
-4000 2000

-6000
-8000 0
FY19 FY20 FY21 FY22 FY23e FY24e FY19 FY20 FY21 FY22

Source: IEA, PhillipCapital India Research

Corporate guarantees already brought down to half

MHS being a cash cow of the group has supported other sister concerns in the past,
especially the rigs business, as they were not generating enough cash to repay debt.
MHS had corporate guarantees on the loans taken by the drilling business and USD
debt in the Singapore subsidiary through which the company bought iron ore mines in
Brazil. MHS has managed to cut down corporate guarantees from US$ 81mn in 1HFY20
to US$ 45mn in 3MFY22. Out of the US$ 45mn total outstanding, US$ 30mn is for loan
availed by Discovery Drilling against rig Jindal Pioneer. Management assures that there
will be no cash outflow from MSL, as cash flows from the long-term contract of
discovery drilling are more than sufficient to service bank obligations.

This corporate guarantee will gradually amortize monthly, and will fall off in September
2024. Out of the remaining US$ 15mn, it has paid off US$ 5mn in March 2022 and the We expect corporate grantees
will pay the rest in US$ 5mn instalments every six months. Thus, by FY23 end, the
to come down by US$ 27mn
corporate guarantee would come down to US$ 30mn only.
by FY23 end. The drilling
Corporate guarantee/Singapore subsidiary outstanding business is self-sufficient, but
US$ Mn Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-23 MHS may have to pay its
Discovery Drilling 43 43 35 33 31 30 18 Singapore debt
Maharashtra Seamless (Singapore) 30 25 20 20 15 15 0
Internovia Natural Resources 8 8 8 0 0 0 0
Total 81 76 63 53 46 45 18
Source: Company, PhillipCapital India Research

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 MAHARASHTRA SEAMLESS INITIATING COVERAGE

Key Risks
Rapid fall in oil/gas prices: Seamless division drives most of the profit for the company
and the fortunes are directly linked to the oil/gas industry. Any sharp fall in oil prices
due to global growth concerns would directly affect capex, and in turn the order book
for the seamless pipes industry.

Anti-dumping duty of Chinese imports expired; exposing India to imports: FY14-16

was a tough period for the Indian seamless players, as low oil prices had put pressure
on orders and c.25% of the Indian market was captured by cheap Chinese imports. The
situation improved when the government put AD on Chinese imports in 2017. The AD
expired in October 2021. Though high steel prices and the Make in India policy is
helping the company now. However, the sector remains exposed to imports in case
steel prices fall meaningfully.

Shift in capital allocation: MHS has made some non-core investments such as rig
business (US$ 100mn total consideration) and buying 30% stake in an iron ore mine in
Brazil for US$ 95mn. The company later had to take impairment on the mine. Though
its management has promised not to invest in any non-core businesses, any shift from
this policy can led to cash leakages into less profitable/non-performing businesses.

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 MAHARASHTRA SEAMLESS INITIATING COVERAGE

Company profile
• Incorporated in 1988.
• Set up their first plant in Nagathone (Maharashtra) through a technical
collaboration with Mannesmann Demag Huttentechnik (Germany) to manufacture
seamless pipes & tubes to serve an import-dependent market.
• After further expansions over the years, the company’s seamless pipe capacity
currently stands at 650,000 TPS.
• To further strengthen its position in the pipe industry, MSL ventured into ERW pipe
segment, in 2000, by setting up a plant in Raigad (Maharashtra) with an installed
capacity of 120,000 TPA.
• MSL has a pipe coating line in Nagathone and a diversified renewable energy
portfolio (solar and wind power projects) across various locations in Rajasthan and
Maharashtra.
• It had started a new segment, rigs, in FY21. It purchased a self-elevating cantilever-
type mobile offshore drilling unit (MODU), and a jack-up rig named Jindal Explorer.

Plant location and existing capacities

Source: Company, PhillipCapital India Research

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 MAHARASHTRA SEAMLESS INITIATING COVERAGE

Key people
Mr. D. P. Jindal (Chairman)
Mr. Jindal has played a vital part in the company’s management since its inception in
1988. His expertise ranges across general management, strategic acquisitions, finance,
steel pipes & tubes, oil & gas exploration. In February 2020, Mr Jindal switched over
from an executive chairman to a non-executive chairman.

Mr. Saket Jindal (Managing Director)

Mr. Saket Jindal joined the company in September 2001, is a BBA from Boston
University. He has over two decades of experience — in managing the enterprises
engaged in steel pipe, non-banking finance, renewable energy etc. Mr. Saket Jindal is
a son of Mr. DP Jindal, Chairman of the company.

Mr. Danish Bhat (CFO)

Mr. Bhat has over fifteen years of experience across various verticals of finance. He
earned his MBA from Kent Business School, University of Kent, Great Britain. Prior to
joining MSL in May, 2020, he served as the CFO of SNTPL (India), and has previously
worked for Carpenters Fiji Limited, Reliance Jio Infocomm Limited, Michelin, India,
PwC, Bharti Airtel Limited & Hewlett Packard in different geographies - India, United
Kingdom & Pacific.

Milestones
1989-92 MSL’s entry into seamless pipes: The 7” seamless pipe plant is set up. Commissioning the country’s first OCTG seamless pipe
project, the 7” seamless pipe plant using CPE technology at Nagothane, Maharashtra (with technical know how from German giant
Mannesmann Demag Huttentechnik, Gmbh). Today, it is the largest manufacturer of seamless pipes and tubes in India.
2000 MSL sets up a plant to make 20” ERW pipe, largest diameter ERW pipes in India. Today, MSL is one of the largest ERW pipe
manufacturers in the country.
2001 Entry into renewable energy: MSL ventures into Wind Power energy with 7MW power plant at Satara, Maharashtra.
2004 Sets up another seamless pipe manufacturing plant using plug mill process at Nagothane. Capable of producing up to 14” dia.
seamless pipes.
2005 Entry into value-added products premium connections. MSL sets up a JV with Hydril of USA to manufacture premium connections
required in the most challenging oil & gas sector. Presently, named Jindal Premium Connections Pvt. Ltd., wholly owned by the D.P.
Jindal Group.
2006 MSL sets up a 3LPP and 3LPE anti-corrosive coating facility near its pipe manufacturing plant. This facility can provide both external
and internal coating to pipes up to 1,250 mm dia.
2010 An expander added to 14” seamless pipe mill. MSL has extended its product range up to 20” diameter.
2012 MSL sets up a solar power plant at Pokharan, Rajasthan. Allotted under ‘Jawaharlal National Solar Mission’, the plant can generate 5
MW of power.
2012 MSL sets up new manufacturing plant at Mangaon, Maharashtra, about 30 km from its main Nagothane plant. Plant capable of
manufacturing 6” diameter drill pipes for the drilling industry.
2017 20 MW solar PV power project at Village Khetusar, Tehsil Bap, District Jodhpur, Rajasthan 1 MW rooftop solar plant at MSL’s
Nagothane factory
2019 Acquired United Seamless (125Kt effective capacity) under IBC for Rs 4.7bn
2021 Acquired rig business for US$ 100mn
2022 United Seamless becomes PBT-level profitable

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 MAHARASHTRA SEAMLESS INITIATING COVERAGE

Business segments
MHS primarily caters to companies in the oil & gas sector, followed by other segments,
which include power plants, fertilizers, chemical, pharmaceutical, automobile and
engineering. It has an upstream exposure of 30% and mid-and-downstream exposure
of 70%. In addition, 50% of the domestic volumes come from oil & gas, while in case of
exports, it is primarily in oiland gas; therefore, in total, oil and gas represents a little
over 55% of MHS’ volumes.

Market exposure

Others, 50%

Exports, 17% Domestic,

83%
Oil, 50%

Source: Company, PhillipCapital India Research

MSL’s pipes and tubes manufacturing business accounted for about 96% in FY20. The
pipe segment can be further divided into seamless and ERW pipes that cater to various
customers across industries such as agriculture, automotive, engineering, housing, oil
& gas, etc. Apart from pipes, MSL has a power generation capacity of 59.5 MW from
its wind and solar energy projects. Its power business accounted for about 2% of total
revenue in FY20 and the remaining can be attributed to the new rig segment and other
unallocated sources.

MSL business segments

Seamless Pipes ERW Pipes Other
(coated and premium connection pipes and pipe fittings)
Types Types Types
Hot Finished Pipes & Tubes MS & GI Pipes 3LPE, 3LPP and FBE Coated Pipes
Cold Pilgered/Cold Drawn Tubes API Line Pipes Internal Coating Pipes
Boiler Tubes OCTG Pipes and Casing Pipe Fittings
API Line Pipes Tubing Premium Connection Pipes
OCTG Pipes
OCTG Casing and Tubing
OTCG Drill Pipe
Industry Served Industry Served Industry Served
Agriculture Automotive Agriculture
Engineering Bearing Engineering
Housing Chemical Housing
Irrigation Fertilizers Irrigation
Oil & Gas Mechanical Mechanical
Public Health Oil & Gas Oil & Gas
Petrochemical Public Health
Power
Public Health

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 MAHARASHTRA SEAMLESS INITIATING COVERAGE

Product segment

Hot Finished /Boilers

Seamless Pipes
(650,000 tonnes)
Drill Pipes/cylinder
Maharashtra pipes
Seamless

ERW (120,000
APL line pipe
tonnes)

Source: Company, PhillipCapital India Research

Major clients

Source: Company, PhillipCapital India Research

Page | 57 | PHILLIPCAPITAL INDIA RESEARCH

 MAHARASHTRA SEAMLESS INITIATING COVERAGE

Revenue (Rs bn) and growth EBITDA (Rs bn) and growth
Revenue Growth (%) - RHS EBITDA Growth (%) - RHS
50 100 9 140

80 8 120
40 7 100
60
6 80
30 40 5 60

20 4 40
20
3 20
0
10 2 0
-20
1 (20)
0 -40 0 (40)
FY18 FY19 FY20 FY21 FY22 FY23e FY24e FY18 FY19 FY20 FY21 FY22 FY23e FY24e

Volumes are likely to see 10% CAGR over FY22-24, but lower steel Expect EBITDA/t to remain stable during FY22-24
prices would mean revenue growth will moderate

RoE / RoCE trends (%) Volumes trend (000 tonne)

25 RoCE RoE Seamless ERW

600

20 500

400
15
300
10
200

5
100

0 0
FY18 FY19 FY20 FY21 FY22 FY23e FY24e FY18 FY19 FY20 FY21 FY22 FY23e FY24e

Better volume growth will help return-ratio expansion Expect majority of the growth to come from the SAW pipes division

Net debt/(cash) – Rs mn North America EAF steel profitability (USD/tonne)

12000 Receivable Payable Inventory
10000 180
8000 160
6000 140
4000 120
2000 100
0 80
-2000 60
-4000 40
-6000 20
-8000 0
FY18 FY19 FY20 FY21 FY22 FY23e FY24e FY18 FY19 FY20 FY21 FY22 FY23e FY24e

FY22 net debt was inflated due to higher working capital requirements Expect WC days to moderate, aided by lower inventory days
as steel prices are at historic highs. Expect debt to come down in the
next year
Source: Company, PhillipCapital India Research

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 MAHARASHTRA SEAMLESS INITIATING COVERAGE

Financials
Income Statement Cash Flow
Y/E Mar, Rs mn FY21 FY22 FY23E FY24E Y/E Mar, Rs mn FY21 FY22 FY23E FY24E
Net sales 23,083 42,003 45,466 47,186 Pre-tax profit 5,524 5,345 6,898 7,520
Growth, % (12.7) 82.0 8.2 3.8 Depreciation 1,215 1,379 1,183 1,225
Other operating income - - - - Chg in working capital 160 (8,558) 2,219 (323)
Raw material expenses 13,935 28,664 29,113 29,992 Total tax paid 6 (124) (1,417) (1,723)
Employee expenses 723 818 1,076 1,120 Other operating activities 557 507 399 319
Other Operating expenses 3,771 6,399 7,745 8,037 Cash flow from operating activities 7,462 (1,451) 9,282 7,017
EBITDA (Core) 4,654 6,122 7,532 8,037 Capital expenditure (58) (95) (2,200) (1,000)
Growth, % (13.9) 31.5 23.0 6.7 Other investing activities (748) 4,398 - -
Margin, % 20.2 14.6 16.6 17.0 Cash flow from investing activities (806) 4,303 (2,200) (1,000)
Depreciation 1,215 1,379 1,183 1,225 Other financing activities (4,351) (486) (486) (319)
EBIT 3,440 4,743 6,349 6,812 Equity raised/(repaid) - - - -
Growth, % (24.0) 37.9 33.9 7.3 Debt raised/(repaid) (2,239) (2,129) (2,000) (2,000)
Margin, % 14.9 11.3 14.0 14.4 Dividend (incl. tax) (277) (395) (395) (395)
Interest paid 557 507 399 319 Cash flow from financing activities (6,867) (3,010) (2,881) (2,715)
Other Income 874 1,109 948 1,027 Net chg in cash (211) (158) 4,200 3,303
Non-recurring Items (1,910) - - -
Pre tax profit 1,846 5,345 6,898 7,520
Tax provided 511 1,012 1,566 1,880
Profit after tax 1,335 4,333 5,331 5,640
Valuation Ratios
Minorities/JV shares - - - - FY21 FY22 FY23E FY24E
Net Profit 1,335 4,333 5,331 5,640 Per Share data
Growth, % - 224.6 23.0 5.8 EPS (INR) 48.4 64.7 79.6 84.2
Net Profit (adjusted) 3,245 4,333 5,331 5,640 Growth, % (17.4) 33.5 23.0 5.8
Unadj. shares (m) 67 67 67 67 Book NAV/share (INR) 492.4 551.7 624.1 702.4
Wtd avg shares (m) 67 67 67 67 FDEPS (INR) 48.4 64.7 79.6 84.2
CEPS (INR) 40.2 85.2 97.2 102.5
CFPS (INR) 89.8 (45.8) 118.4 84.6
Balance Sheet DPS (INR) 3.5 5.0 5.0 5.0
Y/E Mar, Rs mn FY21 FY22 FY23E FY24E
Cash & bank 653 495 4,695 7,998 Return ratios
Marketable securities at cost 1,791 799 799 799 Return on assets (%) 10.5 9.0 10.3 10.0
Debtors 4,713 5,568 6,228 6,464 Return on equity (%) 9.8 11.7 12.7 12.0
Inventory 9,732 14,346 12,457 12,928 Return on capital employed (%) 13.0 10.9 12.2 11.9
Loans & advances 3,591 3,138 2,927 2,804 ROIC (%) 9.2 10.5 12.5 13.2
Other current assets 999 2,128 2,128 2,128
Total current assets 21,479 26,474 29,234 33,119 Turnover ratios
Investments 9,182 5,776 5,776 5,776 Asset turnover (x) 0.7 1.2 1.2 1.2
Gross fixed assets 36,788 35,458 35,458 35,458 Sales/Net FA (x) 1.0 1.9 2.1 2.1
Less: Depreciation (14,118) (14,118) (15,301) (16,526) Working capital/Sales (x) 0.4 0.4 0.3 0.3
Add: Capital WIP 88 134 2,334 3,334 Receivable days 74.5 48.4 50.0 50.0
Net fixed assets 22,758 21,474 22,491 22,267 Inventory days 153.9 124.7 100.0 100.0
Non - current assets 137 155 155 155 Payable days 148.0 50.1 54.4 54.7
Total assets 53,556 53,879 57,656 61,317 Working capital days 134.2 145.3 116.4 114.7

Current liabilities 10,547 8,461 9,240 9,499 Liquidity ratios

Provisions - - - - Current ratio (x) 2.0 3.1 3.2 3.5
Total current liabilities 10,547 8,461 9,240 9,499 Quick ratio (x) 1.1 1.4 1.8 2.1
Non - current liabilities 10,021 8,452 6,601 4,758 Interest cover (x) 6.2 9.4 15.9 21.3
Total liabilities 20,568 16,913 15,841 14,257 Total debt/Equity (x) 27.9 19.2 12.2 6.6
Paid - up capital 335 335 335 335 Net debt/Equity (x) 20.5 15.7 (1.0) (12.1)
Reserves & surplus 32,653 36,631 41,480 46,725
Minorities - - - - Valuation
Shareholders’ equity 32,988 36,966 41,815 47,060 PER (x) 2.8 8.5 7.0 6.6
Total equity & liabilities 53,556 53,879 57,656 61,317 PEG (x) yoy growth (0.7) 0.3 0.3 1.1
Price/Book (x) 0.4 1.0 0.9 0.8
EV/Net sales (x) 0.9 1.0 0.8 0.7
EV/EBITDA (x) 4.5 7.0 4.9 3.9
EV/EBIT (x) 6.1 9.0 5.8 4.6
Source: Company, PhillipCapital India Research

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