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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