Monday, October 26, 2009

PSL Ltd recomended in todays ...ET...Investor's Guide

Piping Hot

Rising demand, diversified manufacturing facilities and increased capacities provide higher upside potential for PSL


AS INDIA marches fast on the path of economic development, the demand for energy will increase rapidly. This has led to an increased exploration of oil and gas, raising demand for inputs such as pipes. Oil and gas companies such as Gas Authority of India (Gail) have been awarding bigger contracts to pipemakers in the last one year. A rebound in crude oil prices has also led to more exploration activity across the world, mainly in west Asia. PSL, with its diverse manufacturing facilities, will be one of the gainers of the increase in exploration. Anticipating more orders in the coming years, the company recently ramped up its capacity. An investor looking for reasonable returns with a 1-2-year horizon could consider adding PSL to her portfolio. BUSINESS: PSL is the largest helical submerged arc welding (HSAW) pipe-maker in the country and commands an over 50% share of the market with a capacity of about 1.5 million tonnes. The company also offers a range of coating services that are used to increase corrosion-resistance capacity of pipes. It has 13 pipe mills, a majority of which are spread strategically across eastern and western coasts. The well-distributed manufacturing facilities give it an edge over its competitors with lower freight cost and ability to service overseas markets. FINANCIALS: PSL’s net sales have more than doubled in the last two years. With an operating margin of 9-11%, the company has invested heavily in these two years. This has resulted in a sharp increase in its debt, with its debt-to-equity ratio at around 1.65. However, this is not a cause of concern as the company has consistent and high operating cash flows. It has given a return on capital employed (RoCE) of over 16% for the last five years, achieving a figure of 20% last year. PSL has the ability to set up its own manufacturing plants that saves it a lot of capital when building new plants. Also, the company uses hotrolled coil as raw material that is widely available in the country, helps it save on inventory maintenance cost. GROWTH DRIVER: PSL has an order book of about 1.3 times of its net sales in 2008-09, and most of these orders are from domestic clients. This provides a good visibility of its revenue flows for the next 12-15 months. The discovery of gas in the KG basin and a government proposal to set up a national gas grid provide ample growth opportunity for the company. PSL is probably the only firm that has a large number of manufacturing facilities in the east, helping it to tap a higher proportion of the pipe contracts from this region. VALUATION: The company’s decision to ramp up its capacity recently is timely considering the signs of recovery in the global economy. Also, its current capacity utilisation rate is 40-50% and this can be increased to 65-70%. The impact of all these factors would be visible in the coming years. The stock is currently trading at a trailing price-earning multiple of around 10.5. Historically, the stock has traded at a price-earnings multiple of more than 25 when Sensex was at around the 17,000 mark. PSL’s estimated earning per share (EPS) in 2009-10 is estimated at Rs 24, translating into a forward price-earning multiple of around 7. All these factors indicate that there is enough room for growth in the stock price. If an investor has a time horizon of 1-2 years, PSL is a good bet.


  1. Hi Rajeev,

    Thanks a ton for all your superb recommendations. What do you say on Force Motors and Vimta labs. I had some holding in IKF Technologies, which I cashed because of slow moment and to buy some of you gr8 recommendations.

    Kindly suggest!!!!!!!!

  2. Hi Rajeev, I have already taken position on PSL. But decided to take GUJ. Flurochem over SRF due to high ROE and ROCE.
    Anyway asking you one question, which may sound silly?
    Whats your opinion about MTNL & SCI? These stocks are below book value, near figure of 100, high promotors ratio, good dividend yield.Its just like a wish that they may turn up like other PSUs like SBI, BHEL etc.
    With regards,

  3. Vikas,
    SCI looks better to me then MTNL....but MTNL may surprise....all

  4. Varun,
    Again Vimta Lab is splitted and already has become a multibagger so now I do not track.....Force Motor not track...
    Keep a watch on Choksi Lab in same Vimta Lab...Clinical Trial....

  5. Dear Rajeev Ji,
    Their is very much voilitality in large Cap as you see in Bharti , JP associates & sesa goa .Now it is dangerous to buy these stocks. Is that means the large cap game is over. I am sensing that small & mid cap company in IT with product engineering lead the rally . Am i thinking right way.


  6. Dear Rajeev,

    What do make of this sudden correction in the markets. Can we expect it to halt around 4750 or do u see it going down further ?

  7. Mitz,
    Everyone are anxious about this correction but market was overbought for ST as it went on and on without giving correction.
    Market will and should bounce back.When everyone starts earning so easily, market gives them a lesson that earning in stock market is not easy.....
    I am not at all pertrubed by this correction.4750 should not be broken...according to me....

  8. Hi, Rajeev, took some position in SCI, but will wait for MTNL to come down. Today Navin has come with terrific numbers. I know you had recommended it since long, but as i was close minded about chemical sector, didnt buy it. Still do you think it can be multi-bagger from CMP?

  9. Yes Vikas, Navin is still a multibagger from here according to me.See the has 30 eps for this qr....just put 10 p/e for full year.....

  10. Hi Rajiv

    What is your opinion on Indage Vintners? Can we take some exposure in this stock?

  11. Amit, I have already replied for this to other readers.....that is why I always write , read my replies so that I have not to give answers twice and hence one can help me saving my time, read every comments and read all replies....It is a buy...