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Jindal Saw – A turnaround story in the making !!!

Jindal Saw – A turnaround story in the making  !!!

The company is a leading manufacturer of iron and steel pipe products, and operates in India, USA, Europe and UAE. Jindal Saw has premium clients including big names from oil and gas industry. The management is constantly trying to conserve greater cash and use it to reduce debt. The company has no expansion plans since the production capacity is optimum, this means no incremental debt.

The main strategic business units the company operates are Welded Line Pipes (SAW Pipes), Ductile Iron Pipes (DI Pipes), Seamless Pipes and Tubes (Seamless Pipes) and Mining and Pellet Division.

Strengths

  • Improving EBITDA Margins which it will maintain at 16.5%
  • No major effect of GST on Taxability
  • Management taking up efforts to control debt and it has given guidance of repaying Rs 200-250 crores every year
  • High cash reserves
  • Imposition of anti dumping duty on Chinese seamless pipes which is a major boon to domestic players currently the industry is dominated by 3players namely Maharashtra seamless, Jindal Saw and ISMT
  • Current Utilization of 85000 tonnes the management plans to increase it to 130000-150000tonnes in coming year which is about 67% of total capacity hence further increase in production is possible without any fresh capex

 

Weakness

  • High Debt levels

 

Valuation

The company is reducing debt and sees increase in revenue due to expansion projects by the company’s clients namely ONGC, Oil India and Gail , thus, we assign a conservative 5x EV/EBITDA multiple on FY 19(Discount to 8x which is applied to Maharastra seamless) giving us a target price of Rs.280 over long term

 

Valuation(Working)

Jindal Saw

(In Rs.Crores) 2016-17 2017-18 2018-19
MCAP 2625 2625 2625
Debt 3302 3102 2902
Cash 198 78 35
EV 5729 5649 5492
Sales 7548 9435 10850.25
EBITDA 936.25 1415.25 1736.04
EBITDA Margin 12% 15% 16%
EV/EBITDA 6.119092123 3.991520933 3.163521578
Target Multiple     3.5
No of shares(in crores)     31
Target Price     196

Technical Aspects

The monthly chart of Jindal Saw demonstrates that price has rebounded higher from long term support zone ( i.e 35-30levels) where its has take earlier couple of times and has seen strong upmove.  From past 4-5 years stock has been trading in range of 35-115 levels. During this congestion volumes activity has seen attractive indicates participation by smart players and investors which shows confidence in the stock price to move higher in medium to long term  time horizon. As witnessed earlier, price has seen strong upmove (30-250) and this history seems likely to repeat looking at fundamental and technical parameters. Momentum Indicator RSI(14) has developed Bullish divergence pattern with price near recent bottom compliments bullish view in price. As well RSI is near breaking above 60 levels which is bullish sign and suggests momentum in favor of bulls. On the higher side 134-177-198 can act as long term key resistance zone and conversely on lower side 74-61 can act as support levels in medium term. Hence this stock should be kept in radar with positive bias in this name with taking medium to long term basis.

 

 

 

 

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