Buy Maharashtra Seamless; target of Rs 570: ICICI Direct

ICICI Direct's research report on Maharashtra Seamless

The Government of India’s emphasis on initiatives like replacement of old oil & gas pipelines, Pan-India gas pipeline connectivity, city gas distribution is likely to spur demand for pipes. First the anti-dumping duty levied in 2016, and later the National Steel Policy 2017 mandating the use of domestically manufactured iron and steel for government procurements have aided the performance of the pipes industry as a whole in the last two years. The company expects a capex revival in the oil and gas sector in the near term to boost the demand for pipes. The management indicated overall the pipes industry is likely to clock a growth of ~7-8% annually going forward.

Outlook

Maharashtra Seamless is a leading supplier of seamless pipes in the domestic market. With the demand revival for both seamless and ERW pipes on the back of government initiatives in the infrastructure sector and capex activities in the oil & gas sector, MSL being a formidable player is likely to be the natural beneficiary. We expect seamless pipe volumes to grow at a CAGR of ~14% in FY18-20E while overall pipe sales volume is likely to grow at a CAGR of ~13%. On the back of strong realisations, we expect the company’s topline, EBITDA and PAT to increase 22%, 27% and 33% during FY18-20E. We value the company on SOTP basis arriving at a target price of Rs570. We have a BUY recommendation on the stock.