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Buy Man Industries – ICICI Direct

August 28, 2007

ICICI Direct Research has put a BUY recommendation on Man Industries with a price target of Rs 306 within a time frame of 3-6 months.

Man Industries (India) Ltd, the flagship company of the Man Group, UK, manufactures steel line pipes for high and medium pressure applications such as oil and gas, petrochemical and water transportation, anti-corrosion coating systems and aluminum extrusion products.

Demand for SAW pipes is likely to remain firm in next five years due to burgeoning crude prices and depleting oil reserves. Global demand is expected to be in the range of 67 million tonnes with around 66% flowing in from Middle East, Asia & US, the key markets for the Indian players. While demand in Europe and Russia would be met by internal supplies, demand in Middle East and US is likely to be met through imports. This high demand, coupled with supply constraints, would keep prices firm at for least two years through CY08 and 09, escalating to mid 2010, where after it may start softening.

Man Industries is in capex mode and post expansion, its capacity of 1 million tonnes would be more than 2x the existing capacity, equally distributed between LSAW and HSAW pipes. This would reduce the risk and increase the size of addressable market. With a robust order book position of Rs 2,400 crore, the top line is expected to grow at a CAGR of 51% over FY07-09E and net profit by 67%. Capacity utilization should be at about at 40% in FY09E.

Man Industries is set to capitalize on the rising global demand for pipelines. At the current price of Rs 255, the stock is trading at 4.42x the FY09E EPS.

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