Hold Jindal Saw; target of Rs 186: ICICIdirect.com

“Jindal Saw’s net sales of Q4FY11 came inline with our expectation at Rs 1155.3 crore as against our expectation of Rs 1153.7 crore. However EBITDA came lower than expectation at Rs 175 crore (I-Direct estimate of Rs 258 crore). Decline in EBITDA is mainly attributed to 1) increase in the input and other costs for all the segments 2) higher freight cost on few export consignment and 3) due to execution of low margin order of HSAW pipe from GAIL. The EBITDA margins of the company have contracted significantly by 1130 bps YoY to ~15.2% in Q4FY11.  The company has included one time forex payment of Rs 12 crore in the  interest cost of the  Q4FY11 which has lead to jump in the interest cost by ~34% YoY.  Excluding this (forex payment of Rs 12 crore) interest cost of the company has declined by ~21% YoY. Due to sharp contraction in EBITDA margins and outgo on forex payment the net profit of the company stood at Rs 80.2 crore , i.e., a declined by ~55% YoY and ~36% QoQ (I-Direct estimate of Rs 154.6 crore).”

“At the current market price of Rs 170 the company discounts its FY12E and FY13E 4.8 and EV/EBITDA by 5.8x and 4.8x respectively. We have valued the company on SOTP basis assigning 4.5 EV/EBITDA to the core business and giving a 50% holding company discount to the investments (Rs 50 per share) , we arrive  at our target prices on the stock at Rs 186, thus maintaining our HOLD rating,” says ICICIdirect.com research report.

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