Bihar Tubes Ltd - 200.00 Rs

Incorporated in 1986, Bihar Tubes Ltd (BTL) is primarily engaged in manufacturing of steel pipes & tubes. It has broadly divided its product range into four segments – galvanized pipes, ERW pipes, pre-galvanized pipes and hollow pipes. The first two categories are the most common type of pipes manufactured by several organized as well as unorganized players under stiff competition with low margin. But for the third segment i.e. pre-galvanized pipes, BTL is the pioneer and only company in India producing it. Although a new product in India, pre-galvanized pipes & tubes are very successful in international market due to saving on zinc cost as they have a zinc coating of 80-120 gm/mt while that for galvanized tubes is 400 gm/mt. And for the last segment viz. square and rectangular hollow pipes, BTL is the second largest manufacturer in the country after Tata Steel. Hollow pipes are mainly used by construction and infrastructure industry as the cement concrete structures are being replaced by steel sections. Today BTL, possess the capability to provide nearly 150 kinds of tubes across thickness, layering, treatment and chemical composition, thereby emerging as a one-stop shop for customers with varied requirements. To summarize, company’s products are used in diverse sectors linked closely to India’s growth like oil and gas, water management, mass rapid transportation, construction, engineering, automobiles, sugar, power and agricultural equipment industries. Moreover around 10% of revenue comes from export to over 35 countries like US, Colombia, Nigeria, Ireland, Middle East, Africa and Germany.

BTL currently has four tube production mills in Sikandarabad, UP out of which three have their technology imported from Kusakabe, Japan. To cater the rising demand, last fiscal only company has increased its overall capacity of steel pipes and tubes from 60,000 to 125,000 MTPA. BTL has a network of 100 distributors throughout the country with a strong presence in north and south India where it markets products under the popular 'APL Apollo' brand name. It also sells directly to various institutional customers from engineering and construction space such as L&T, BHEL, Reliance, Nagarjuna Construction, BSNL, Suzlon Energy, Era Construction, Simplex Infrastructure. Indian Railways, Tata motors, Gammon, BL Kashyap, Triveni Engineering, among others. As a step towards backward integration, BTL took over a small company called Apollo Metalex having a capacity of 24,000 MTPA for galvanising sheets. Besides to improve its profit margin, it is shifting its product mix in favour of hollow sections and pre-galvanized products since these earn relatively higher realizations. It is also aggressively setting up branches across India with a view to having a pan-India presence. For future growth, BTL is foraying into the automobile sector by creating a capacity of 35,000mtpa for boiler tubes, air heated and shock absorber tube. It is setting up a facility in Maharashtra to manufacture infrastructure pipes, API grade pipes and precision tubes. The company is also looking to scale up the value chain via the manufacture of 20”- diameter tubes and is currently setting up a tube mill for this purpose. With a view to curtail input costs, company is undertaking backward integration via the set up of a fully integrated 100,000 MTPA HR skelp plant at Sikandarabad.

In a bid to ramp up its capacity and expand its geographical reach, BTL is making an acquisition in western India and is in the final stages of negotiation. In future company intends to have total installed capacity of 300,000 MTPA along with its own coating plant. Moreover, recently BTL has entered into 80:20 joint venture agreement with Kusakabe to set up a 12,000 MTPA facility for manufacture of stainless steel pipes and tubes with an investment of 20 cr. To fund its growth plans, company has already issued 31.75 lac warrants to be converted @ Rs 140 per share. Further, company is contemplating to come out with an FCCB issue to the tune of US $ 20 million. On the back of strong performance for the first two quarter, BTL is expected to end FY08 with sales of Rs 260 cr and NP of Rs 16 cr. This leads to an EPS of Rs 25 on current equity of Rs 6.40 cr whereas the diluted EPS works out to Rs 12.50 on equity of Rs 12.75 cr. For FY09 it has the potential to post an EPS of Rs 17~18. Hence, investors are advised to buy at sharp declines with a price target of Rs 250 (i.e. 25% returns) in 12 months.

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