January 24, 2010

BOMBAY

Dear All,

I had analysed Maharashtra Seamless for investment purpose on

November 11, 2009. My case for investment was as follows:

To read the full article, JUST CLICK:

Maharashtra Seamless - An Analysis for Investment

www.scribd.com/doc/22356027

Or,

http://groups.google.co.in/group/random-thoughts-on-
investments/files?hl=en&&sort=date

Any rise in international crude oil prices will have a salutary impact on E &
P activity of the world’s Oil majors and their requirement for seamless and
ERW pipes will go up; which in turn will give a boost to MSL’s revenues

Steel prices have fallen since last year and this is a big profit margin-
booster for the company. As a result of the decline in steel prices, the
company’s OPM has risen by 11.5 percentage points to 27.20 per cent in
September 2009 quarters (over Sep.08 qtr).

It’s practically a debt-free company and known for its high transparency

It’s a cash-rich company with a cash and cash equivalents of Rs 622 crore
as on 30.9.09, working out to Rs 88 cash per share

At CMP of Rs 312 (close prices of 9.11.09), the PE ratio is 8.3 and the
price-book value is 1.70. These ratios are lower compared to its
competitors Jindal SAW and Welspun Gujarat which command a PE ratio
of 9.1 and 13.8; and price-book value of 1.74 and 3.25 respectively

MSL’s operating profit margin (OPM) for the quarter ended September
2009 is 27.20 per cent (a jump of 11.5 percentage points compared to
14.7 per cent in September 2008 quarter) due to decline in metal prices

Compared to MSL’s OPM of around 27 per cent, the OPMs of Jindal SAW
and Welspun Gujarat are much lower at 19 and 16 per cent respectively

MSL’s ROCE and RONW are at 30.6% and 21.5% respectively for 2008-
09 and these are one of the highest in the pipes industry in India

Jindal SAW and Welspun Gujarat have much lower capital efficiency with
their ROCE at 18.6 and 17.2 per cent; and RONW of 16.2 and 14.8 per
cent respectively for 2008-09

MSL’s cash and bank balance is at Rs 622 crore amounting to Rs 88 per
share (September 30, 2009)
The current market price of the company’s equity share is Rs 356 (close price of
January 22, 2010) and its PE ratio is 9.5 and price-book value is 1.92. Its 52-
week high was Rs 392 on January 18, 2010. Following the weakness in markets
in the wake of disappointing December 2009 quarterly results from L&T, the
stock had fallen from Rs 392 to the CMP of Rs 356. The weakness can be
utilized by investors to accumulate the stock.

Now, Business Line has recommended a buy on the stock in its issue dated
January 24, 2010. Its recommendation is more or less on same investment
rationale as I’ve mentioned above. To read the abridged version of their analysis,
just see below.

Is it still worth investing even at this point of time at the current market price of Rs
356 per share? I genuinely think it’s attractive from a two-three year perspective.

Any way, do your own diligence test through business prospects, competition, oil
prices, balance sheet strength, etc; and invest according to your risk appetite,
risk profile, asset allocation and following other investment tenets. And read my
‘disclaimer’ given in the above mentioned article before investing.

Happy investing,

Rama Krishna V
BOMBAY

++++++++++++++++++++++++++++++++++++++++++++++++++++

Maharashtra Seamless: Buy

BUSINESS LINE, Janury 24, 2010

Investors can consider buying the shares of steel pipe maker Maharashtra
Seamless.

 At the current price of Rs 356, the stock trades at 9.5 times its one-year
trailing earnings, with robust growth in sales and net profit in last two years
 In addition to boasting operating margins that have been consistently better
than bigger peers such as Jindal SAW and Welspun-Gujarat Stahl Rohren,
the company has also consistently provided better returns on capital
employed.
 It has also weathered the pressure on realisations over the last 16-18
months much better than peers. Jindal SAW and Welspun-Gujarat Stahl
trade at 9.7 times and 10.9 times their per share earnings, respectively.
 Though currently dependent on external sources for steel billets, the
company is also mulling a move towards an integrated model by producing
billets.
 Its order book, which stands at around Rs 430 crore, includes a multi-year
deal from ONGC for OCTG products.
 Prospects for future order flows appear strong with potential demand from
GAIL, Reliance Gas Transportation and other oil and gas distribution
companies.
 Globally, too, rising oil and gas prices have also rendered new projects
more viable, improving medium-term demand prospects for pipes, casings,
etc.
 Recently imposed duties on Chinese pipe imports by the US augur well for
pipe makers across the globe including Maharashtra Seamless which has
already witnessed a spike in export orders.
 It is practically a zero-debt company
 The risks include the import threat from China and the still-tentative
prospects for global demand including the US.
 Raw material costs have favoured secondary steel makers through 2009,
this is unlikely to remain the case through 2010.

To read the full article, JUST CLICK:

http://www.thehindubusinessline.com/iw/2010/01/24/stories/2010012451720100.
htm