Buy Maharashtra Seamless; target of Rs 560: Kotak Securities

Kotak Securities' research report on Maharashtra Seamless

MSL Q2FY18 PAT declined 12.5% YY despite significant growth in revenue due to execution of low margin legacy orders. EBITDA margin contracted YY due to 1/ booking of low margin legacy orders and 2/ high base of Q2FY17.  We consider that this is a quarterly aberration and maintain our FY19 earnings estimate. We believe that MSL valuations can get rerated on back of strong growth in company’s estimated consolidated profits through FY17-19E driven by 1) recovery in demand for seamless pipes in the domestic/international market and 2) imposition of anti-dumping duty on Chinese imports would lead to demand shifting towards domestic industry and 3) limited competition from domestic players who are struggling with their highly leveraged balance sheets.

Outlook
We value MSL stock at 9x EV/EBITDA FY19E earnings and maintain BUY with an unchaged target price of Rs 560 per share.

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