The stock of Jindal Saw, leading manufacturer of submerged arc welded (SAW) pipes in the country, has sharply outperformed the broader markets in the past one month. It gained 45.8% last month to Rs 765.65 per share against a 10.7% increase in the BSE Sensex.
Niraj Shah and Jatin Damania of Centrum Broking maintain that the run-up was mainly in anticipation of increased order flows given 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,” Shah and Damania wrote in a note to clients on Thursday.
The company has three strategic business units engaged in producing large diameter pipes, ductile iron pipes and seamless tubes & pipes, respectively. Saw pipes account of 67% of the order book of $780 million, to be executed by March 2010. The order book for seamless pipes stands at $95 million and for ductile iron pipes at $160 million.
The current order book translates into three-fourth of the company’s revenues in calendar 2008. Given that, earnings visibility would be adversely impacted if order inflow does not improve.
Jindal Saw performed well in the June quarter, helped by better operating performance and higher volumes in the seamless tubes business. Operating performance benefited from lower coking coal prices, range-bound currency movement and significant operating efficiency gains from the installation of new rotary furnace at seamless facility.
Operating performance is expected to be strong in September quarter as well. At the current market price, the stock trades at 9 times its estimated earnings for 2010.
The Centrum Broking analysts have revised their earnings estimates upwards for FY2010 by 39.9% to Rs 82.9, mainly due to the change in the company’s financial year ending from December to March —- FY10 will thus be for 15 months (Jan 2009 to March 2010).
Comments