Tamilnadu Newsprint & Paper Ltd - Rs 75.00

Incorporated in 1979, Tamilnadu Newsprint & Paper Ltd (TNPL) was promoted by the Government of Tamil Nadu who still holds around 35% stake in the company. Inspite of being a public sector company, TNPL pioneered the concept of producing paper from Bagasse, namely sugarcane waste thereby using as little wood as possible. Today apart from being one of the lowest cost manufacturer, company boast of having the world’s largest bagasse based paper mill with a capacity of 2,45,000 TPA. It is also the largest exporter of wood free paper from India. TNPL basically manufactures printing and writing paper comprising cream wove, copier and mapiltho paper for business stationery, classical writing, computer stationery and other commercial and quality printing. It offers a range of high-quality surface sized maplitho paper to suit any kind of printing - sheet-fed or web-offset. It is the undisputed market leader for computer stationery in domestic market. Presently company’s product is supplied to over 30 countries across Asia-Pacific, Australia, Middle East, the Mediterranean and the African subcontinent with exports contributing nearly 20% of total revenue. Of late, TNPL has diversified into cement and real estate development in a very small scale.

TNPL is acknowledged as the world leader in technology for the manufacture of paper from bagasse and has the most modern paper mill in the country with unique bagasse procurement, storing, preserving, handling, processing and pulping system. It continues to enjoy its relatively lower reliance on wood because of its vision to make paper primarily from Bagasse - a sugarcane waste product, which is abundant and cheap, as compared to wood which is scarce and expensive. Ironically, due to this technology it actually avoids the chopping down of trees in about 30,000 acres of forest land every year. However it maintains a relationship of 65:35 for bagasse and wood pulp in production to ensure high quality of the paper. After the completion of the Phase – I of Mill Expansion Plan, TNPL now boast of having paper production capacity of 2,45,000 TPA. It has also increased its captive pulp production capacity from 170,000 TPA to 260,000 TPA with element chlorine free (ECF) bleaching. In order to further de-risk the exposure to volatile wood pulp prices, company has been constantly increasing the pulpwood plantation through farm forestry and captive plantation schemes. In the last fiscal i.e. FY09 company has further brought 10,571 acres under its fold thereby taking the total count to 40,291 acres. On the other hand, company is already self-sufficient in power with in-house captive power generation capacity of 86.12 MW and another 35.50 MW thru wind farm. Infact it has been supplying surplus power to State grid.

For FY09, TNPL made an all time high production of 2,54,903 tons of paper against 2,45,471 tons last year with a capacity utilization of 104%. And as usual, for the 18th year in the row company sold the entire production and achieved zero stock of finished goods as on 31st March 2009 which is a unique record in the paper industry. Recently during April’09, TNPL implemented the life cycle extension of its Paper Machine I thru a capital investment of Rs 70 cr. This has improved the runnability of the machine along with improved quality of product. Moreover, considering the robust outlook for paper industry and to maintain its future growth, TNPL is implementing the Phase – II of Mill Expansion plan which will augment the production capacity by whopping 60% to 400,000 TPA from the current 245,000 TPA. The project is expected to complete by June 2010 and involves an investment of Rs 1000 cr (increased from Rs 725 cr estimated earlier). The project has been funded mostly by debt and partially thru internal accruals. Interestingly, TNPL has entered into the carbon trading by having got its Bio-methanation plant registered as CDM project with UNFCCC and is expected to get 37,000 CER as carbon credit till 2013. Moreover it is setting up a mini cement plant with a capacity of 400 tpd for producing high grade cement using the lime sludge and fly ash – the waste material generated in the process of manufacture of paper. TNPL is also constructing an IT Park measuring an office area of 4 lakhs sq. ft. on its surplus land in suburb of Chennai. Both these projects are estimated to complete by mid 2010.
Financially as well as fundamentally company is on a strong footing, but however it has taken a significant debt on its books to finance the mill expansion plan. For FY09 company is estimated to have debt equity ratio of 1.3~1.4x times which is although not alarming. For FY10 it may pay around Rs 125 cr of interest which will eat up nearly 50% of profit thereby having a financial leverage of more than 2x times. However post commencement of the expanded capacity, cash flow will improve considerably and by FY12 its debt equity ratio may fall back to 0.80x times or so. Well, meanwhile for FY09 TNPL has recorded 17% growth in sales to Rs 1097 cr whereas net profit declined by 5% to Rs 107 cr due to substantial jump in interest cost. This translates into an EPS of Rs 15.50 on equity of Rs 69.20 cr. Company has maintained its dividend at 45% which gives an whopping yield of 6% at CMP. However, company has recognized Rs 18 cr gain on exchange fluctuation of earlier years. Moreover it hasn’t provided Rs 47 cr mark to market notional loss on forex derivative contracts but instead created a hedging reserve account. Although its an non operational item but any actual booking of loss may dent the bottomline in the coming years. But considering company’s eco friendly technology, Cash EPS of Rs 30, dividend yield of 6%, book value of nearly Rs 100 and most importantly future growth, scrip is available relatively cheap. Investors can buy at dips to get 50% return within 15 months.

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Last week Numeric Power (380.00) reported almost flat nos for the March’09 quarters with net sales of Rs 113 cr and net profit of Rs 10 cr thereby posting an EPS of Rs 20 for the single quarter. Effectively for entire FY09 it recorded 5% growth in topline to Rs 409 cr but PAT declined by 15% to Rs 33.50 cr. This translates into EPS of Rs 66 on small equity of Rs 5.05 cr. Incidentally, on a consolidated basis company has clocked a turnover of Rs 443 cr and profit of Rs 38 cr i.e. EPS of Rs 76. Thus company is currently trading at a P/E multiple of 5x times against its current consolidated earnings. Company has eight world class manufacturing facilities spread across Pondichery-TN, Chennai-TN, Parvanoo-HP and Colombo-Srilanka, thereby emerging as the biggest integrated manufacture of UPS in India. It also undertakes turnkey projects and offers end to end solution for SCADA/EMS package, large network of industrial process, power transmission support systems and distribution management. It has an enviable and high profile clientele including Infosys, Siemens, Intel, Philips, Microsoft, Veritas, HDFC, Citibank, ICICI, RBI, NIC, Reliance, ABB, BMW, NCR, Nokia, major stock exchanges etc. As per rough estimates, around 75% of the ATMs in the country are fitted with UPS supplied by the company. Recently, company ventured into solar power generation using Photo Voltaic Modules and initially intends to develop solar hybrid UPS systems. To become more efficient, it is backward integrating into batteries and is scouting for a technology partner to set up a battery manufacturing unit. To conclude, company has the potential to report 20% growth for FY10. Keep accumulating at sharp declines.

For the latest March’09 quarter Tantia Construction (65.00) has reported excellent performance by clocking an operating margin of impressive 15%. Thus is registered 160% jump in net profit to Rs 12.50 cr although its topline remained flat at Rs 169 cr. Eventually for entire FY09, its PAT improved by 12% to Rs 17.25 cr and revenue increased by 25% to Rs 450 cr thereby posting an EPS of Rs 11 on current equity of Rs 15.57 cr. This stupendous performance is backed by good order booking in the last few months. Its current order book position stands healthy at Rs 1500 cr which is more than 3x times its FY09 turnover thereby giving strong future revenue visibility. Company boasts of having presence in roads and highways, railways, tunnels, bridges and flyovers, urban instructure, sewerage and drainage, civil & housing construction etc. Lately, it also ventured into the lucrative marine infrastructure space, power transmission and distribution segment and aviation infrastructure. Infact, it is among the five Indian companies capable of providing ‘foundation-to-finish’ for mega railway bridges spanning 2-km or more. More importantly, company has a very strong presence in the eastern and north-eastern region which gives it an edge, as very few players are interested in bidding in these regions due to difficult terrain. With Mamta Banerjee being the railway minister a special fund has been created for development of north east railway in the recent railway budget. This augurs well for the company as its forte lies in railways infrastructure. A decent bet for long term.

International Combustion (215.00) has reported very flat nos the March’09 quarter and ended FY09 with topline of Rs 99 cr (up 5%) and bottomline of Rs 10 cr (down 15%). Thus it clocked an EPS of Rs 41 on a very tiny equity of Rs 2.40 cr. Company is a leading manufacturer of sophisticated plant and machinery for core industries. To have a cutting edge technology for manufacturing premium quality equipment, ICIL has made several tie-ups with international majors like Danfoss Bauer(Germany), Mogensen(Germany), IMS Engineering(South Africa), Alstom Power(USA), Gummi Kuper (Germany) and Tredomen Eng (UK) for each product group. To meet the increasing demand, company has initiated an expansion programme for augmenting the manufacturing capacity of the gear box/geared motor division. It is also upgrading the manufacturing capacity of the Heavy Engineering Division. Ironically, scrip which crossed Rs 900 in Dec’07 tumbled down to as low as Rs 80 in March’09 and has now recovered to above Rs 200 in a very short span. For FY10 it can report sales of Rs 125 cr and profit of Rs 14 cr leading to an EPS of Rs 58. Even at modest discounting by 5x time scrip can move up to Rs 300 by March’10. A safe buy.

Last week, Ind Swift Lab (40.00) reported satisfactory result for March’09 quarter. Sales grew by 20% to Rs 148 cr but net profit remained flat at Rs 11 cr posting an EPS of little more than Rs 4 for the quarter. Accordingly for the entire FY09 its sales jumped up 30% to Rs 588 cr and profit increased by 10% to Rs 35 cr after considering onetime extraordinary expense of Rs 5 cr. Thus company reported an EPS of Rs 16 on current equity of Rs 25 cr. Notably, company has started exporting to USA after getting USFDA approval in Sept 2007 for its API manufacturing facility at Derabassi Punjab for Clarithromycin. Presently, exports constitute around 40% of sales with company having presence in 45-50 countries across globe. For future growth the company has a robust product pipeline of 25 products which includes few blockbuster drugs as well. It has successfully filed over 72 DMFs with the US, Canadian, UK and European Drug Authorities. Hence company has been aggressively expanding its capacity and has increased the gross block by almost five times to Rs 470 cr from 100 cr in 2005. With a healthy book value of Rs 97, scrip is trading relatively cheap at a P/E ratio of 2.5x times. However high debt equity ratio is cause of concern.

Ind Swift Ltd - Rs 19.00

Incorporated in 1986, Ind Swift Ltd (ISL) is the flagship company of the north India based Ind Swift group which has diversified interest in pharmaceuticals, education, infrastructure, media & publication and software development. However the group’s core business remains manufacturing of pharmaceuticals products as it is a leading player in both the segment of industry namely bulk drugs and formulation. In order to concentrate & grow both the segments independently, the formulation business is looked after ISL whereas Ind Swift Lab another listed group company specializes in bulk drugs and API’s (active pharmaceutical ingredients). Thus ISL’s forte lies in production of various formulations, branding and marketing them in finished dosage form encompassing several therapeutic segments. It mainly focuses on critical but relatively under crowded therapeutic segments like pediatrics, cardiology, gynecology and diabetes apart from having significant presence in high growth segments like Cardiology, Diabetology, Anti depressant, anti-allergic, Anti- infective, Neurology & Oncology. Infact company boasts of formulating Neurophen - a composition of Ibuprofen & Acetamenofen for the first time in India apart from introducing another formulation Suprox SR, a composition of Isoxprine Hel in tablet form. It also claims to be the pioneer for the mouth dissolving tablets technology in India. Notably, ISL is among the top 500 fortune companies of India and have been ranked at No. 35 by IMS/ORG in Pharmaceutical industry during 2007-08 with a portfolio of 650 products and a nationwide distribution network comprising 1200 marketing professional, 50 offices in India, and 3000 stockists and distributors.

ISL’s core competency lies in its manufacturing capabilities as it has 7 state-of-the art multipurpose, multilocation manufacturing set-ups spread over an area of 12,00,000 sq ft with an installed capacity of 3 billion units comprising tablets, capsules, Ointments, Injectable, Liquids & Dry Syrup. All it production facilities are spread across tax free zone in Parwanoo & Baddi (HP), Samba(J&K), Jawaharpur (Punjab). Importantly, all the units are built according to current guidelines of USFDA and comply with WHO cGMP standards. Most of its units are audited and certified by international rating agencies like MHRA(UK),TGA(Australia), MoH(UAE), TFDA(Tanzania), NDA(Uganda) and DACA(Ethiopia). Simultaneously, ISL put equal emphasis on Research & development and gained critical expertise in development of non infringing process, novel drug delivery system, new process development for cost effectiveness, NCMR handling etc. Its only because of its strong R&D effort, company has been able to launch on an average 25~30 products over the last five years. After gaining commands over manufacturing and R&D, ISL is now focusing on marketing aspect. To effectively track the operations and growth of each therapeutic segment, ISL has formed 12 different marketing divisions. Out of these 'Diagnozis' division dealing in medical equipments & devices for personal health care was launched in December 2007 and 'Animal Health Care' division is also relatively new. On the other hand its ‘Ethical’ marketing division continues to excel with regular introduction of unique products. Of late it has introduced Topclav 625, Emtee 25, Timcol Eye Drops etc and Cirrholiv which has proved out to be extremely useful in curing Hepatities and other liver disorders. Interestingly, ISL’s strategy is counter to general industry’s practice of maximizing sales thru higher dosage consumption, with introduction of one dosage per day thereby resulting into greater consumer acceptance. Infact, ISL’s few brands such as Amyclox, Swimox, Oxo, Swiflox and Cafzone have been rated as the top brands in Generics commanding sales of more than Rs 25 cr each in short time. Whereas its brand Swimox and Amyclox are among top 300 brands of the industry. Besides, company also exports to Latin America, Middle East, African countries, Srilanka, Vietnam, Myanmar, Combodia and CIS countries.

Apart from creating and marketing its own brand, ISL has put special thrust on CRAMS (Contract research and Manufacturing Services) business. Company provides contract research from conceptualization till the final dossier of the product. Till date it has delivered two major R&D contracts and is expecting more research contracts on product development and stability data profiling. Side by side it also offers complete support to international partners for preparing and filing dossiers for finished dosages. On the other hand, it supplies large quantities of products to reputed Indian pharma companies including Ranbaxy, Cipla, Glenmark, Lupin etc. It even has contract manufacturing alliances with different companies in UK, Europe, Turkey and Iran. For future growth company is betting high on contract manufacturing and expects this segment to contribute more than 30% to its total bottomline.

Financially, ISL has over leveraged itself with a high debt equity ratio of more than 2x times. Sarcastically, its detrimental for growth in bottomline as cost of debt works out to nearly 8% whereas return on capital employed is merely 3%. However for the year ending March 2009, it recorded 15% growth in sales and net profit to Rs 589 cr and 31.50 cr. This works out to an EPS of Rs 8.50 on tiny equity of Rs 7.40 cr having face value as Rs 2/- per share. On the back of constant capex, company follows a very low dividend payout ratio policy. It has augmented its Gross Block at CAGR of 60% in the last 5 years. At an estimated reserve of more than Rs 200 cr, scrip is trading at steep discount of 65% to its book value. Moreover for FY10, ISL is expected to clock a turnover of Rs 700 cr and PAT of Rs 38 cr on standalone basis. Incidentally, company holds 26% stake in Ind Swift lab which is another growing company and currently commanding a market cap of Rs 100 cr. To conclude, although ISL looks reasonably valued at EV/EBIDTA of 5.50x times, still investor can accumulate it sharp declines for 50% gains within a year.

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Patels Airtemp (55.00) reported decent nos for the March’09 quarter. Despite sales declined by 5% to Rs 20 cr PAT improved by 15% to Rs 1.80 cr. For the full year it recorded 25% rise in turnover to Rs 68.50 cr and 40% increase in net profit to Rs 7 cr thereby posting an EPS of Rs 14 for FY09. Company has declared 18% dividend against 15% last year. Company is engaged in the manufacture and sale of extensive range of heat exchangers such as shell & tube type, finned tube type and air cooled heat exchangers, pressure vessels, air-conditioning and refrigeration equipments and turnkey HVAC projects in India & marketing of equipments even outside India. It has technical collaboration with M/S. TEK FINS Inc. USA for design and manufacture of air cooled heat exchangers. It supplies to core industrial sectors like power, refineries, fertilizers, cements, petrochemicals, pharmaceuticals, textiles and chemical Industries. For future growth company is concentrating more on high value added engineering products and has even got its product the coveted ASME `U' Stamp authorization. For FY10 it has the potential to register further 20% rise in revenue and profit. At a current enterprise value of Rs 35 cr and PE ratio of less than 4x times, scrip is trading reasonably cheap. Accumulate at declines.

Recently, ABG Shipyard (200.00) reported 35% rise in total revenue to Rs 371 cr and 15% increase in net profit to Rs 53 cr for March’09 quarter. Accordingly for full year its turnover shot up by 45% to Rs 1412 cr but PAT improved by 7% to Rs 173 cr. Thus it posted an EPS of Rs 34 on current equity of Rs 51 cr. Taking the benefit of recent amendment in AS11, company has capitalized Rs 22 cr of exchange difference. It is one of India’s largest private sector shipbuilding companies & established manufacturer and service provider of a variety of ships, including bulk carriers, interceptor boats, diving support vessels, anchor handling supply ships, dynamic positioning vessels, anchor handling tugs & other multipurpose vehicles. Till date it has delivered 104 ships and has further order book position of nearly Rs 10,000 cr to be executed in next 4~5 years. In the October last year it bagged its first rig order from Essar Oilfields Services Ltd, Mauritius. Importantly, company didn’t see any major order cancellation from its customers till now despite the all round fear and recession around the world. Notably, ABG is the first ship building company in private sector to actually receive the subsidy to the tune of Rs 19 cr from govt last year. As the shipbuilding industry in India is still at nascent stage and commands hardly 1% share in world market, it has tremendous growth potential ahead. Recently company has made a counter offer of Rs 375 per share (against Bharti Shipyards Rs 344 per share) to share holders of Great offshore Ltd to acquire 32% stake. This will lead to cash outflow of Rs 471 cr for which company is looking to raise the money thru equity placement. Buy at declines

Last week Accurate Transformers (30.00) reported very flat nos for the March’09 quarter as topline stood at Rs 91 cr and PAT at Rs 3.50 cr. As the company caters to govt organizations, its fourth quarter nos always constitute almost 50% of sales and profit. Accordingly it ended FY09 with 10% rise in sales to Rs 195 cr whereas net profit remained flat at Rs 7 cr. This translates into EPS of Rs 24 on a very tiny equity of Rs 3 cr. Company is engaged in manufacturing of power as well as distribution transformers ranging from 1 MVA to 40 MVA - in up to 220 KV class. It is looking to venture into manufacturing of higher capacity power Transformers of 160 MVA from FY10. It also carries out rural electrification project which involves the complete setting up of electricity in remote areas including the laying of lines, poles and substations. Unfortunately company is working at very low capacity utilization due to high working capital requirement and shortage of funds. On a gross block of Rs 11 cr company claims of having an installed transformer manufacturing capacity of 8000 MVA, of which 3000 MVA in Dehradun and Haridwar are relatively new and enjoy income tax and excise exemptions. Although market experts are skeptic about this company still aggressive investors can buy this scrip as it look grossly cheap at current market cap of Rs 15 cr.

HBL Power (100.00) came out disappointing nos for the March’09 quarter. It recorded 20% decline in net profit to Rs 18 cr on a flat sales of Rs 284 cr. Despite this on the full year basis, its topline grew by 30% to Rs 1244 cr and bottomline increase by 35% to Rs 91 cr leading to an EPS of Rs 37 on equity of Rs 24.30 cr. Company is a technology focused manufacturer of several ranges of specialized application batteries i.e. nickel cadmium (pocket, fibre, and sintered plate), lead acid (VRLA, Tubular, LMLA), silver oxide zinc, lithium, thermal, etc. Infact it is the market leader in VRLA (valve regulated lead acid) and NCPP (nickel cadium pocket plate) batteries and enjoys 50% market share of domestic telecom market. Infact it is the world’s second largest player in nickel cadium alkaline batteries and stands 3rd for Nicad Passenger aircraft batteries. It also manufactures other power electronics such as thyristor controlled battery chargers, earth leakage monitors, battery monitoring systems, industrial chargers, uninterrupted power systems, distribution boards etc. It even has a dedicated railway division to execute end-to-end turnkey railway signaling works, starting from yard design, estimation, procurement, installation and commissioning. Recently it has put up two new factories at Vizianagaram and SEZ Vizag in Visakhapatnam under a capex of Rs 150 cr and is now setting up a small facility in Mahape, New Mumbai. It is also planning to set up of JV Company in Saudi Arabia to manufacture Industrial Batteries. As the prices of lead, nickel, copper, tin and other metals has fallen considerably in the recent times, company may report better performance in coming quarters. Meanwhile just to improve the liquidity company has decided for stock split into face value of Rs 1/- per share. Although no super growth is expected for FY10 still this company deserves a better discounting and valuation. Keep accumulating at declines.

Man Industries (India) Ltd - Rs 40.00

Established in 1988 as an aluminium extruder, Man Industries India Ltd (MIIL) today is one of India's largest producers and exporter of submerged arc welded (SAW) pipes. Being led by dynamics personalities like Mr R.C. Mansukhani and Mr. J.C. Masukhani, MIIL is the flagship company of reputed MAN group which has diversified business interest in India, USA, UK and UAE. Within the last ten years, company has multiplied its production capacity 20x times, from 50,000 tonne in 1998 to 1 million tonne currently. It specializes in production of large diameter Longitudinally SAW pipes & Helically (Spirally) SAW pipes. LSAW line pipes are generally used in transportation of oil and natural gas in high temperature and pressure applications in refineries and petrochemical units apart from finding application in fertilizers and dredging industry. On the other hand HSAW pipes are used under low pressure condition for transportation of oil, water, sewerage, agriculture and in construction sector. Company has the capability to manufacture LSAW pipes with outer diameter ranging from 16~60 inches and wall thickness of 6~38 mm upto maximum pipe length of 12 mtrs. Whereas for HSAW it can make pipes having 16~84 inches of outer diameter upto maximum length of 18 mtrs. Infact it is the only company in India to manufacture 18 mtr long HSAW pipe and up to 30 mm thickness in X-70 grade steel. Besides manufacturing, MIIL also has the in-house processing facilities for all types of Anti-corrosion coating such as 3LPE, FBE, Internal Epoxy etc and cement mortar coatings. And among the recent developments MIIL has diversified into real estate & infrastructure development in a small scale thru a subsidiary “Man Infraprojects” and has also hived off the extrusion business into “Man Aluminum – a separate listed company.

Currently, MIIL has two huge manufacturing plants spread across 200 acres – one at Pithampur, MP and other at Anjar, Gujarat having combined installed capacity of 500,000 TPA of LSAW pipes and 500,000 TPA of HSAW pipes. Out of this, 200,000 tonne of HSAW pipe manufacturing has been added last year only. With a vision to become a true global player, company has acquired 155 acres of land in Little Rock, USA for putting up state-of-the-art HSAW pipe manufacturing plant having capacity of 300,000 MTPA at an estimated investment of Rs 400~450 cr. However, due to world economic condition this project is put on hold and may be even dropped in future. But at the same time it will enjoy the benefits from recent domestic expansion. Couple of months ago company bagged a huge single order to the tune of Rs 1340 cr from a Middle East company which proves the strong credentials and execution capability of the company. With this its current order book position swelled to Rs 2000 cr straight away. Earlier company had a bagged order worth nearly Rs 1000 cr from a single US client. Apart from current order in hand, company has emerged as lowest bidder for order worth Rs 1100 cr in domestic and international markets. This is including a major order of Rs 400 cr approx, which has been re-invited for tender by GAIL and challenged by MIIL in the court as already being declared the lowest bidder. Actually, at the time of placing the order post tender, GAIL had asked the company to reduce the tender price. But as MIIL rejected the same, GAIL went ahead and made invitations for re-tender for the same contract. Although this may strain some business relations with GAIL but MIIL already has an impressive global clientele comprising Shell, Technip, Bechtel, Elpaso, Kinder Morgan, ENI, Hyundai, Petronas, Petrojet, Petrobras, Saipem and several oil majors in Middle east in the international markets, and Cairn India, ONGC, IOC, Reliance Industries, Essar Oil, BPCL, HPCL, IBP LNG Petronet, etc in the domestic market. Thus, company is in the bidding stage for many projects for supplying pipes worth Rs 5000 cr and expects to bag additional Rs 2000 cr order this fiscal.

The demand for SAW pipes is significantly dependent upon the level of exploration activities and transportation of oil and natural gas in India and globally, which is currently being driven up by volatile crude oil prices. Incidentally, concentration of source of crude in the Middle East augurs well for Indian pipes manufacturers as they have the advantage of being in the close proximity to Middle East vis-a-vis other major pipe manufacturers in Japan or Europe. On the other hand, demand arising from the replacement of old pipelines, dominantly in the USA and Russia is further pushing up the SAW pipes demand. As per certain estimates, there is a global demand supply mismatch of nearly 2 million tones currently. Moreover, here in India, demand for pipes has risen significantly with thrust on laying pipeline infrastructure for oil & gas transportation. The Indian natural gas market is relatively underdeveloped compared to other regions of the world. By 2024-2025, the share of natural gas would increase to 20% of total primary energy consumption, according to Hydrocarbon Vision 2025. With growth in consumption, the transportation infrastructure would naturally see a phenomenal jump. Higher usage of natural gas requires better & economical transportation medium and thus more pipelines. Further, strong growth expected in infrastructure, power, construction and housing sector would also lead to a spurt in the demand for pipes. In addition to all the above, severe correction in metal prices and shipping freight will have positive impact on the company’s bottomline going forward.

Infact recently, MIIL posted encouraging result for the March’09 quarter. Sales zoomed up 75% to Rs 722 cr whereas PAT jumped up 40% to Rs 19 cr posting an EPS of 3.60 for the quarter. Accordingly for entire FY09 it recorded 25% rise in sales to Rs 1883 cr but net profit declined by 35% to Rs 47 cr. Thus it posted an EPS of Rs 9 on current equity of Rs 26.60 cr having face value as Rs 2 per share. It declared and maintained Rs 1.50 as dividend giving a yield of nearly 4% at CMP. On the flip side, is OPM for FY09 fell considerably by 300 basis points on account of volatile metal prices which constitute more than 80% of production cost. Of late, the steel and other metal prices have corrected & stabilized, which will enable the company to improve and maintain the margin in coming quarters. Financially, MIIL had raised around Rs 200 cr in May 2007 thru FCCB route to set up a plant in USA. But now as the company is not proceeding with that plan and also doesn’t has any other major capex plan, it has decided to buyback the FCCB thru the unutilized amount and thru internal accruals. This will prevent the equity from huge dilution which would have been detrimental for the existing shareholders. Incidentally, due to high conversion price and adverse market sentiment, not a single bond has been converted into equity, despite the conversion price being revised downward couple of times. Importantly, promoters have increased their stake thru creeping acquisition as it stands to 48% against 44% a year back. Secondly, few days back they have also taken preferential allotment of 25 lac warrants to be converted into equity @ Rs 35 per share. With an expected EPS of Rs 11 and current book value of Rs 70, company is available fairly cheap at market cap of little over Rs 200 cr. Investors are strongly recommended to buy at current levels for 50% gain within a year.

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