Jindal Saw

JINDAL Saw, one of the leading pipe manufacturers in the country, saw the prices of its stock plunge by close to 5% during the initial hours of trade.

Last week, the company’s stock gained around 7%. At the current price of Rs 700, the stock is trading at a trailing price-earning multiple of close to 9. During last year’s market meltdown, the Jindal Saw stock was badly hammered and the stock price dropped during the early part of this year to a level that the price-earning multiple, or PE multiple slipped to below one. However, the stock has consistently gained thereafter, thanks to the market upswing. With a priceearning multiple of 9, the stock is reasonably valued compared to its peers. If one were to look at the historical chart, Jindal Saw’s price-earning ratio (PER) has almost always traded at a discount to that of other top two pipe manufacturers — Welspun Gujarat Stahl Rohren (WGSL) and PSL.

Currently, PSL and WGSL are trading at a price-earning multiple of around 11 and 16, respectively. Having said that, the prospects of the company look bright. Its capacity is expected to grow by close to 30% to around 2 million tonnes over the next 2-3 years. Its diversified product portfolio — SAW (sub-merged arc welded) pipes and DI (ductile iron) pipes — helps in mitigating the demand risk arising out of a particular industry. It has a modest order book of Rs 3,600 crore and this translates into 0.7 times of its annual net sales in FY 2008-09. Its operating margin at 14-15% is comparable to its industry peers. However, the company lacks raw material integration and is at a disadvantageous position compared to integrated players such as WGSL.