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  • Stock recommendation: Maharashtra Seamless Ltd – BUY – TP Rs.805

    Publish date: August 21, 2018

    Result Update

    MSL Q1FY19 result significantly outperformed our estimates; sales grew on back of improved realizations in Seamless as well as ERW pipe division. Margins expanded significantly on y/y and sequential basis demonstrating the pricing power. We note that Q1FY19 (and so the Q4FY18 quarter) signals sustainable recovery in company's financials in foreseeable future, supporting our investment thesis.

    Key Highlights

    • MSL revenue reported at Rs 6 Bn in Q1FY19 (+34.9% y/y; Q1FY18 sales adjusted for excise) driven by steel pipes & tubes (seamless pipes & ERW pipes) sales, reported at Rs 5.9 Bn (+25% y/y).
    • Seamless pipe division significant jump in EBITDA per MT to Rs 18567 in Q1FY19 vis-à-vis Rs 7056 in Q1FY18 and Rs 16545 in Q4FY18.

    Valuation & Outlook

    • Post Q1FY19 result and interacting with the company's management, we reiterate our positive view on MSL stock. We sharply revise our FY20 earnings estimate upwards (revise FY20 PAT by 40%); believe that MSL valuations can get further rerated on back of strong growth in company's estimated consolidated profits through FY19-20E driven by recovery in demand for seamless pipes in the domestic/international market and 2) company's leadership positioning in Indian market.
    • MSL stock continues to trade at attractive valuations at 4.6 FY20 EV/EBITDA. We value MSL stock at 7.5x EV/EBITDA FY20E earnings and maintain BUY with revised target price of Rs 805 per share (Rs 615 earlier)


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