>JINDAL SAW (CENTRUM)

Run-up in stock price unwarranted

We believe the recent run-up in stock price by 31% in last one month was mainly in anticipation of increased order flows on the back of the improving economic outlook. However, no new pipeline projects have been announced as yet. Though we have raised our estimates due to change in the company’s accounting period from December to March, we reiterate Hold and expect 18- 20% correction in the stock price if the anticipated orders do not materialise.

■ Order book still subdued: The company’s order book currently stands at $780mn (SAW pipes – US$525mn, seamless pipes – US$95mn and ductile iron pipes – US$160mn) to be executed by March 2010. Exports account for over 40% of the order book. The management expects to bag orders worth US$120mn by Dec 2009 from the Middle East, which would boost earnings visibility by three months.

■ PQF pipe mill to commence operations in Oct 2010: The management is confident of starting commercial operations of its premium quality finishing (PQF) mill in October 2010. The PQF technology would improve the product quality and cost and help in reducing yield loss from 18%-19% currently to 10%-12% by FY11E, thereby improving margins.

■ Estimates revised: We raise our earnings estimates by 39.9% to Rs82.9 for FY10 and 54.3% to Rs73.3 for FY11, mainly due to the change in the company’s financial year ending from December to March (FY10 will be for 15 months from 1 Jan 2009 to 31 March 2010).

■ Fairly valued, maintain Hold: At CMP, the stock trades at 9.1x FY10E and 10.3x FY11E earnings, 6.0x and 6.6x FY10E and FY11E EV/EBITDA. We believe expectations of a surge in order book are overdone. We reiterate Hold rating on the stock and value it at 10x FY11E earnings, translating into a revised target price of Rs730.

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