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BUY Gandhi Special Tubes for 6 Months

December 27, 2007

We have received recommendations from several corneres including HDFC Securities Research on Gandhi Special Tubes. [A Midcap Steel Company].

Gandhi Special Tubes Ltd (GSTL) is a niche-player in the small diameter seamless and welded tubes segment. It also manufactures tubular components and has a presence in the wind power segment, automobile, general engineering and refrigeration.

The Indian Auto-components Industry is expected to grow at a CAGR of 16% over until 2011-12. GSTL primarily caters to fast growing industries like the automobile and general engineering industry.

GSTL operates in a very niche segment and has virtually no competitors in the small diameter seamless tube space, which contributes over 60% of its topline. Being a capitalintensive business, GSTL, is to a large extent insulated from threats by new competitors entering this segment, as the gestation period. GSTL has a list of reputable clients, which includes domestic companies like M&M and Maruti Udyog as well as multi-nationals like Bosch India and Daewoo.

GSTL is a Zero debt company and has invested Rs 40 crore in doubling its capacity. GSTL enjoys benefits of cheap captive power, as it owns 5 windmills. GSTL is expected to report net sales of Rs. 78 cr and Rs. 96 cr in FY08 (E) and FY09 (E) respectively. Respective EPS is expected to be Rs 23.1 and Rs 28.6. HDFC Sec and others recommend a buy at the CMP and to add on dips to Rs.178-189 band with a price target of Rs. 272 (9.5 times FY09 (E) EPS) in the next one-year.

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