Recommendation From Steel - Tubes & Pipes sector

Hi-Tech Pipes is engaged in the business of manufacturing and supplying steel pipes, hollow sections, tubes, cold rolled coils and strips, and a range of other galvanized products. The company offers cold-rolled (CR) coils, tubes and pipes, and crash barriers. Its steel tubes and pipes products include water, air and gas pipelines, structural steel tubes, precision tubes, and grooved fire-fighting pipes. Hi-Tech Pipes’ hollow section products include square hollow sections, rectangular hollow sections and circular hollow sections. The company designs and supplies steel pipes for various water, air and gas transport applications. It also manufactures pipes with grooves directly rolled into the pipe ends. Its precision tubes are used in automobiles, power and industrial boilers, transformers, economisers, heat exchangers, bicycles, automobiles, railway electrification and furniture applications. 

Going forward in FY18, Hi-Tech Pipes is entering into new products such as high quality precision tubes at its Sanand and Bangalore facilities. The company will also enter high margin business of solar mounting structures. It is setting up solar mounting capacities in Bangalore. Hi-Tech Pipes has strategic locational advantage as major solar projects are located/coming up in Andhra Pradesh and Karnataka. 

On the financial front, Hi-Tech Pipes’ topline increased 7.69 per cent CAGR in last the five financial years ending with FY16. The company’s EBITDA too rose 14.73 per cent CAGR in FY12-FY16. Its bottomline also soared 27.17 per cent in the last five fiscals ending with FY16.

Hi-Tech Pipes’ revenue increased 9.93 per cent to Rs.504 crore in FY16 as compared to the previous financial year. The company’s operating profit too rose 26.7 per cent to Rs.31.94 crore in FY16 on a yearly basis. Its operating profit margin expanded by 84 basis points to 6.34 per cent in FY16 as compared to the previous financial year. Hi-Tech Pipes’ PAT also boosted 30.53 per cent to Rs.6.50 crore in FY16 on a yearly basis. 

Hi-Tech Pipes’ total debt-to-equity ratio stood at 2.14x in FY16 which has come down from 2.34x in FY15. The company’s interest coverage ratio stood at 1.27x in FY16. Its ROE and ROCE remained at 11.42 per cent and 14.79 per cent in FY16, respectively. 

The company's net sales increased 34.4 per cent to Rs.309 crore in H1FY17 as compared to the same period in the previous financial year. The company’s EBITDA also boosted 46.9 per cent to Rs.20.4 crore in H1FY17 on a yearly basis. It has posted PAT of Rs.4.6 crore with a massive growth of 73 per cent in H1FY17. 

On the valuation front, the share price of Hi-Tech Pipes is trading at TTM PE of 20.77x as against industry PE of 15.55x. The company’s book value stood at Rs.64.38. It has given dividend yield of 0.38 per cent to its shareholders. On its strong growth plans, we recommend a BUY on the stock.