Sunday, May 24, 2009


Key points

A smart play on the pipe sector: With equal capacity for both HSAW and LSAW pipes, MAN Industries (India) Ltd (MIL) offers an exciting play on the Indian pipe industry. The pipe makers around the world are expected to benefit from the expected revival in global E&P capex on the back of the hardening crude oil prices and allaying concerns over the global economic scenario. The global opportunity for pipes is pegged at over $80 billion over the next few years while the domestic opportunity remains strong led by the heavy capex of GAIL, GSPL etc.

Strong order book: With the win of a huge order of Rs1,340 crore from the Persian Gulf, the current order backlog of the company stands at Rs2,000 crore. MIL also has L1 position in orders worth Rs1,100 crore which are likely to be awarded soon. Moreover, the margins were maintained in FY2009 despite a challenging environment and we expect them to sustain going forward as well.

Capacities already expanded; US plans put on hold: In the last couple of years, MIL has substantially raised its capacity to 1 million tonne currently. With its capex already completed, it does not have any meaningful capex lined up for the future. It has also put on hold its plans to set up an HSAW plant in the USA. In fact, the company has decided to buy back its FCCBs and the purchase would be funded out of the unutilised FCCB money and internal accruals.

Realty portfolio adds to the attraction: MIL’s subsidiary, Man Infra, is currently executing two commercial projects in Bandra and Vile Parle, and one residentialcum- commercial project at Nerul. In our valuations, we have not considered the value of the real estate portfolio as the realty business is at a very nascent stage. However, we have valued the realty projects of the group at Rs103.4 crore and if this value is included in our estimates the same could add about
Rs19 to the sum-of-the-parts valuation.

Attractive valuations: The stock is currently trading at about 3.1x FY2011E earnings and at an EV/EBIDTA of 1.2x, which is significantly lower than its historic average (of about 9x). With an expected revival in the industry, the valuation multiples are likely to improve. Further, its valuation gap with the larger pipe makers had widened significantly in recent times but the same is likely to narrow down. Assuming a substantial discount to the average multiple, we have valued MIL taking the average of 5x one-year forward PE multiple and 2x one-year forward EV/EBIDTA multiple. We recommend a Buy on the stock with a price target of Rs66.

To see full report: MAN INDUSTRIES