The shares of the oil & gas pipes industry have been attracting interest from all quarters. The share of Welspun Gujarat recommended earlier at Rs.118 has shot up to Rs.162 fetching a gain of 37% in about three months. This time Man Industries Ltd. (MIL)another high profile pipes major, is recommended for decent gains in the long-term.

Incorporated in 1994, MIL is the flagship company of the Man Group and is a leading manufacturer of large diameter SAW line pipes, Longitudinal Submerged Arc Welded (LSAW), Helically Submerged Arc Welded (HSAW) and coating systems for high-pressure applications like transportation of oil, gas and other petrochemical products. The total production capacity of 1 million TPA includes 80% of LSAW pipes and the rest is HSAW. The Man Group holds 12.4% in its equity.

MIL is an ISO 9001, ISO 14001 and ISO 18001 certified company and all its facilities hold valid API licenses, which is a mandatory requirement for production of high-pressure line pipes for hydrocarbon applications. Its 6000 TPA aluminium extrusion division is being demerged into a separate listed entity. Its windmill division in Gujarat already generates revenue and is putting up additional capacity of 4.5 MW in wind energy.

MIL's products find application in high growth areas such as oil, gas, petrochemicals and water transportation. Its major customers in India include HPCL, BPCL, ONGC, Gail, L&T and Punj Lloyd. Its Rs.80 cr. expansion of HSAW division at Anjar, Gujarat, to increase the installed apacity for HSAW pipes by 200,000 MT is expected to go on stream from July 2007.

For FY07, MIL posted 91% higher net profit of Rs.35 cr. on 66% higher sales of Rs.800 cr. and the EPS was Rs.13. It paid a dividend of 25%. During Q3FY07, the net profit advanced by 110% to Rs.16.5 cr. on 58% increased sales of Rs.327 cr.

Its equity capital is Rs.26.6 cr. and with reserves of Rs.255 cr., the book value of the share works out to Rs.106. The promoters hold 40.5% in its equity capital; the foreign holding including FIIs and GDR is 27. Mutual funds/institutions hold 18.3%, PCBs hold 2.6% leaving 11.6% with the investing public.

The $35 mn. raised through the GDR issue has been utilized for refurbishing its capacity and as long-term working capital. In May 2007, MIL concluded $50 mn FCCB issue for the expansion of its manufacturing facilities in India, international expansion and other purposes. The bonds have a tenor of five years and one day and are convertible into equity shares at a price of Rs.287 per share.

MIL is on an expansion mode that will see the firm setting up a US $50 mn facility on the South coast of USA and build IT/ITES special economic zones (SEZs) near Indore. Its diversification plans include a foray into the real estate and hospitality businesses. It is looking at setting up a 300,000 TPA plant with saw pipe manufacturing and coating units in USA.
Its proposal to set up Rs.14,000 cr. special economic zone (SEZ) to develop an IT SEZ over 265 acres in 10 years developing a million square metres each year and has already received the MP government’s clearance. MIL is in the process of de-merging its aluminium extrusion division to enhance shareholders value. The de-merger envisages a share exchange ratio of one equity share of face value of Rs.10 each of the resulting company for every eight shares held in MIL.

The group is strategically focused on infrastructure support by playing a prominent role in the pipe segment of oil & natural gas power, petrochemicals, water transport, sewerage, agriculture and construction.
MIL is concentrating on the West Asian market to cater to the hydrocarbon sector, which has witnessed rapid growth in the oil & gas distribution network. It also expects to clinch orders for 5000-6000 km of oil & gas pipelines in the next five years. It is estimated that projects involving 15,000 km of pipeline would be executed over the next five years.

Its order book of over Rs.2200 cr. includes the recently bagged Rs.1,000 cr. ($225 mn.) from the US-based Mid-continent Express Pipeline LLC for the supply of 257 miles of 42-inch diameter pipelines with external and internal anti-corrosion coating systems.

With the boom in the oil & gas sector and drilling and laying of cross-country pipelines, the pipe & tube industry is witnessing unprecedented demand driven growth. Given the bright prospects of the pipe industry, MIL is confident of continuing the momentum growth.

MIL’s 6000 TPA aluminium extrusion division, which is being demerged into separate listed entity, will unlock the value for shareholders. MIL is expected to post an EPS of about Rs.25 during FY07 and Rs.37 in 2008. The MIL share trading at a forward P/E multiple of 6.2 on FY08E earnings is recommended with a target price of Rs.290 for the medium-term.