MAHARASHTRA SEAMLESS LIMITED
Know the Company
Maharashtra Seamless Ltd (MSL), promoted by DP Jindal Group in 1988 at Raigad, Maharashtra, is a pioneering firm and the largest manufacturer of coated pipes, Electric Resistance Welded (ERW) pipes and seamless pipes in India. The company primarily manufactures Seamless and ERW pipes with an installed capacity of 650,000 TPA, and 125,000 TPA respectively. MSL has also diversified its business into other areas such as renewable power generation by solar and wind, with a capacity of 65 MW across Maharashtra and Rajasthan. The company also operates other businesses through its subsidiaries, including jack-up rigs and iron ore mines overseas.
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MSL acquired United Seamless Tubulaar Pvt Ltd (USTPL)- a seamless pipe manufacturer, under insolvency resolution process in 2020 for a consideration of Rs 480 crore. USTPL has an operating capacity of 200KT, in Andhra Pradesh.
MSL’s products primarily cater to the oil and gas sector, but they also serve various other segments, including power plants, boilers, fertilizers, chemicals, pharmaceuticals, and automobile engineering. MSL currently has a 30% exposure in exploration and production segment and a 70% in mid-downstream exposure.
Strengths
MSL enjoys market leadership in the domestic seamless pipes market, with the capacity to manufacture pipes with diameters up to 20 inches as well as the smallest diameter pipes. The company holds a 55% market share in the Indian seamless pipes market and a 25% market share in the API-certified (high realization) high-frequency ERW pipes segment.
MSL set up the country’s first integrated plant to produce drill pipes, which are widely used in the oil and gas exploration industries. In ERW pipes segment, MSL is also the first to manufacture large-diameter pipes. Within the large-diameter pipes division, the company holds a leadership position and faces comparatively less competition. To maintain its leadership in the industry, MSL has continuously expanded its production capacities and product portfolio, regularly upgrading to the latest manufacturing technologies.
The acquisition of USTPL has enabled MSL to secure a leading position in the domestic seamless pipes segment, surpassing a market share of more than 50%. In addition to operational synergies, the amalgamation of the two companies benefits USTPL by positioning it better to bid for larger tenders due to its increased net worth after the merger. Furthermore, the combined entity can leverage its geographic presence across India.
MSL’s rig business appears promising as the company’s management has observed an increase in day rates, indicating positive developments in this segment due to elevated crude oil prices. Contrary to market speculation, the company clarified that there are currently no plans to exit the rigs business. However, MSL has been realigned to intensify its focus on pipes and renewable energy segments while reducing exposure to other segments.
MSL boasts a robust balance sheet with zero debts in its balance sheet as of December 2023. The company judiciously utilizes internal accruals for working capital, capital expenditure requirements, and other growth opportunities. Management expresses confidence in funding all near-future capital expenditures through internal accruals, without any leveraging of the balance sheet. Additionally, the company currently holds liquid investments totaling almost Rs 1,650 crores.
The company has a highly capable in-house product development team, which has successfully engineered various import substitution products including subsea pipes, cylinder pipes, drill pipes, cold-drawn pipes, and premium connections. These products represent high-margin opportunities for both domestic and export markets.
The Government of India (GoI) remains stiff in its commitment to strengthening the oil and gas sector to reduce fuel imports, which currently stand as the largest foreign exchange outflow. GoI has progressively moved towards investor-friendly liberalized policies and reforms in the Oil & Gas sector to stimulate demand in domestic Exploration and Production (E&P) sectors. These measures include increased Foreign Direct Investment (FDI) in E&P Projects, New Exploration Licensing Policy (NELP) & Coal Bed Methane (CBM) Policies, and the Freight Subsidy Scheme, among others. Prime Minister has already announced that the Government of India plans to invest approximately Rs. 7.5 trillion in oil and gas infrastructure over the next five years, which also includes adding 100 more districts to the City Gas Distribution Network in the next few years. GoI is also actively pursuing the Har Ghar Jal mission, aiming to provide tap water supply to every rural household by FY 2024-25, thereby supporting the domestic steel pipes industry. It is widely acknowledged that India’s existing pipeline infrastructure falls short of what is required to meet the anticipated surge in demand from the oil and gas, especially piped gas distribution as well as water segments. These initiatives augur well for the seamless and ERW pipes industry in India, as the demand outlook remains strong.
MSL recently secured a significant order worth Rs 674 crore from ONGC for the supply of casing seamless pipes last month. As of April 2024, the company’s order book stands at over Rs 2100 crores. A strong order flow is anticipated from ONGC and Oil India in the near future, given ONGC’s significant natural gas discoveries in the Mahanadi basin. Additionally, new oil blocks, Amrit and Moonga, have recently been discovered in the Mumbai offshore region. Oil companies are ramping up drilling activities, supported by elevated crude oil prices, which is expected to increase Exploration and Production (E&P) activities. The company anticipates receiving fresh tenders for drill pipes in the coming quarters.
Financials
In Q3FY2024, MSL registered an 8% year-on-year increase in revenue, with EBITDA and PAT rising by 51% and 67%, respectively. Over the 9-month period of FY20’24, revenue saw a 4% increase compared to the same period in FY 2023, while EBITDA and PAT surged by 30% and 56%, respectively. For the Q3FY2024, the company reported a revenue of Rs 1,466 Crore, marking a rise from Rs 1,363 crore in the corresponding quarter of the previous fiscal year. Net profit for the period stood at Rs 276 crore, up from Rs 160 crore. Notably, the EBITDA for MSL’s ERW business was Rs 5,000 per tons, while for the seamless pipes business, it was Rs 25,000 per tons.
Outlook
While the current domestic demand for iron and steel pipes appears sluggish, it is expected to pick up following the next full budget announcement, given the GoI’s commitment to developing infrastructure and the oil and gas sectors. In addition to focusing on the domestic market, the company is aggressively pursuing new export orders. It aims to secure orders from Saudi Aramco through its collaboration with Larsen and Toubro.
The increase in crude oil prices typically spurs exploration and production activities in oil-rich countries such as the USA, Canada, and the Middle East. The ongoing Russia-Ukraine crisis presents opportunities for steel pipe manufacturers, particularly for supplying European countries, including MSL. Outlook of the seamless pipes market remains robust, supported by the Government of India’s capital expenditure and increased spending in the oil and gas sector. The export market also appears promising due to elevated oil prices and peculiar geopolitical circumstances. Presently, exports account for around 30% of the company’s revenues and contributes nearly 60% of the order book.
Oil and gas exploration activities in the Asia-Pacific region are expected to remain strong over the coming years, driven by the increasing consumption volume attributed to the growing global economy. Additionally, the anticipated acceleration in the replacement of aging pipelines in Europe in the upcoming year is poised to further stimulate demand for pipes from this region. These trends present advantageous opportunities for companies like MSL.
Risk Factors
MSL relies heavily on the oil and gas sector for a significant portion of its demand, including overseas orders. This dependence can lead to volatility in order flow due to the cyclicality inherent in the exploration business. Furthermore, its diversified rig rental business is also closely tied to the same industry, limiting the benefits of business portfolio diversification. Currently, MSL holds an order book worth approximately Rs 2000 crore, with most orders being short-term in nature. This may result in significant inventory levels, posing challenges in inventory management and financial stability.
Sector: Industrials
Market Price: Rs. 806.60 as on today
FV: Rs 5/-
Stock Name: Maharashtra Seamless Ltd
BSE Code: 500265, NSE Code: MAHSEAMLES
Market Cap.: Rs 11205 Cr.
Book Value: Rs. 386
Segment: Iron & Steel Products
Incorporation: 1988
Headquarters: Raigad, Maharashtra
