Buy Man Industries (India) Ltd.
Target : Rs 76
CM Price: Rs 72.15
Order book strength to drive growth…
Man Industries reported a satisfactory performance for Q4FY10. The topline came at Rs 452.8 crore, lower than our expectation of Rs 484 crore despite higher sales volume in both LSAW and HSAW segments. This was due to lower realisation. Though the bottomline remained flat QoQ, it improved by ~56% YoY beating our estimates of Rs 24 crore.
Though margins saw a dip of ~370 bps QoQ, they improved ~490 bps YoY to 12%. On the volume front, the company saw a good YoY jump in the LSAW segment, whereas HSAW witnessed an improvement QoQ. For the full year FY10, the company reported revenues of ~Rs 1524 crore and PAT of ~Rs 67 crore with a margin of ~11.4%. We believe the company will maintain a stable performance, going ahead. We are maintaining our target price of Rs 76 per share with a BUY rating on the stock.
Sales volumes improve
The company has witnessed a good jump in the sales volume of both LSAW and HSAW pipes. While LSAW sales remained flat QoQ, they rose ~134% YoY to 54,353 tonnes. On the other hand, HSAW sales, though they fell YoY by ~10%, rose sharply QoQ to 57,602 tonnes.
Order book improves to Rs 2,000 crore
The company’s order book has shown an improvement to Rs 2000 crore, from Rs 1500 crore at the end of the Q3FY10. Out of the total order book size, LSAW pipes constitute about 60% while the remaining 40% is in HSAW.
Valuation
At the CMP of Rs 66, the stock is trading at 4.7x FY11E EPS of Rs 13.9. Though the company has a good order book position, concerns remain on the margin front, due to a fall in price realisation coupled with strength in raw material prices. We would like to remain cautious at this point. We value the stock at 5.5x FY11E EPS and maintain the target price of Rs 76 per share with a BUY rating.
Outlook & earnings revision
We expect the company to maintain a similar kind of sales volume in the coming fiscal year i.e. FY11E. Sales realisation, on the other hand, may remain subdued. On the margin front, we believe the company would not show any decent growth. We expect margins to remain between 11% and 12%. We are revising our earnings estimates higher by 10% for FY11E.
Valuations
At the CMP of Rs 66, the stock is trading at 4.7x FY11E EPS of Rs 13.8. Though the company has a good order book position, concerns remain on the margin front, due to a fall in price realisation coupled with strength in raw material prices. We would like to remain cautious at this point. We value the stock at 5.5x FY11EEPS and maintain the target price of Rs 76 per share with a BUY rating.
Report card
| Attribute | Value | Date |
|---|---|---|
| PE ratio | 5.76 | 27/05/10 |
| EPS (Rs) | 12.53 | Mar, 10 |
| Sales (Rs crore) | 452.81 | Mar, 10 |
| Face Value (Rs) | 5 | |
| Net profit margin (%) | 2.51 | Mar, 09 |
| Last dividend (%) | 35 | 18/05/10 |
| Return on average equity | 11.73 | Mar, 09 |
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