The Hindu Business Line : Maharashtra Seamless: Buy

AN investment can be considered in the stock of Maharashtra Seamless. At its current price of about Rs 415, the stock trades at about 10 times its likely FY06 earnings. Although the stock has run up sharply in the past few months, we remain positive on its prospects.

With strong fundamentals, robust demand from user segments, gains from its proposed backward integration and a wide client base, the stock offers scope for appreciation in the medium term.

The company derives about 65 per cent of its revenue from seamless pipes; the balance largely is derived from ERW pipes. It has a wide client base, which includes IOC, ONGC, BPCL, GAIL (India), OIL, BHEL and L&T. The growth in the oil and gas exploration and social infrastructure is likely to remain robust, translating into higher volume growth for the company.

Its proposed backward integration project for manufacturing round steel billets, which is likely to go on stream by June 2007, is expected to ease pressure on input costs. It has recently entered into a joint venture with Hydril of US for the manufacture of high-end pipes catering to the domestic and international oil sectors, which should provide further growth impetus.

The financial performance has been consistent over the past five years. Earnings have posted a CAGR of 40 per cent over the past four years and return on shareholder funds for FY05 has been at a healthy 28 per cent. It currently has an order book position of about Rs 300 crore, almost equivalent to 50 per cent of its FY05 revenue.

Radhika Kamath

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