PSL Ltd. (Q3FY07): Result Update
During the quarter the company executed orders of GAIL, Reliance and some other small orders. More than half the contribution to topline during the quarter has been from GAIL and Reliance. This helped the company register a 22.2% topline growth to Rs4.9bn in Q3FY07 against Rs4.1bn in the corresponding last year. For 9MFY07 the company registered topline growth of 10.4% to Rs11.8bn against Rs10.7bn last year. There was an improvement in bottomline by 54.5% and 47.2% for Q3FY07 and 9MFY07 respectively. This translates into nine month annualized EPS of Rs20.5.
The company has a healthy order book of Rs15bn as on December 31, 2006 majority of which will be executed over the next couple of quarters. Order book consists of orders from GAIL, Reliance and L&T in addition to exports (~20% of current order book) and other smaller orders. Of this orders worth about Rs1.5bn from GAIL and Rs2.5bn from Reliance will be executed over the next quarter. The order book consists of orders from oil & gas and water sector. With continued emphasis being on developing infrastructure for oil & gas and water transportation orders for the sector are expected to keep on flowing.
Robust order book coupled with expanded capacities will facilitate strong growth going forward. With industry demand scenario appearing good for the future especially for large diameter pipes the company is well positioned to take advantage of it. We expect the company to not only gain orders from the domestic arena but also from global markets. Pipes are amongst the most economical medium of transportation for high value commodities i.e. oil and gas, as they can transport large volumes thereby reducing cost. PSL is appropriately positioned to benefit from this development as it is amongst the foremost manufacturers of HSAW pipes in India who offer large diameter pipes. To add to its competitiveness the company’s 11 mills are strategically located across India in close proximity to the ports enabling it quick deliveries and reducing transportation costs. With the scenario for the pipes industry remaining robust over the longer term, our broad calculations indicate the company to close FY07E with an earnings of Rs21.9 and FY08E with 26.2.