JINDAL SAW - A LONG TERM BET

CMP: Rs.653.45 (30/04/2008)

Jindal Saw (JINDAL), promoted by the O. P. Jindal group in 1984, is into manufacturing and coating of submerged arc welded pipes (SAW pipes). The company is the largest producer of saw pipes used widely in the energy sector for the transportation of oil and gas. It is India`s first and only manufacturer of such pipes using U-O-E technology. It is a market leader and a global major in providing Total Pipe Solutions to the industry.

The business operations of the company are structured into four SBUs, i.e., saw pipes, seamless tubes, ductile iron spun pipes and the US operations. The company has obtained technical assistance from US engineers and consultants, a subsidiary of US Steel Corporation, for its products. Further, the company has nine manufacturing facilities in Kosikalan (UP), Mundra (Gujarat), Nashik (Maharashtra) and Swastik Foils (New Delhi). Through affiliates, it also manages the largest pipe mill in the US.

The demand for Saw Pipes is expected to rise immensely in next few years as energy majors plans to lay national gas grid, the regional gas grids, city gas distribution networks and international pipelines. About 10,000 new oil retail outlets which would be set up by companies like Reliance, Essar, Shell and ONGC would also require cost efficient transportation viz. pipelines. The oil & gas existing pipeline infrastructure in India is minimal at about 15,000 km. Through existing infrastructure only 25% of oil products can be moved by pipelines in India, compared to 59% in the US. Realising the cost advantage, reliability and low penetration of pipelines; ONGC, Gail (India), Reliance, GSPL, Gujarat Gas and IOC have planned huge investment for laying pipelines. CLSA estimates that total demand from the oil and gas sector in India would be about 17,000 km of pipelines over the next 3-4 years. In FY2005 alone Rs. 30 billion have been planned on pipelines, 50% of which would be on pipes. The 2600-km long and $4.16 billion Iran Pakistan-India pipeline, when sanctioned would be icing on the cake. Thus, we would see JSL's revenue rising in tandem with rise in demand for Saw Pipes.

The Company has experienced a steady growth in all the business segments and expects to have improved performance in all the segments including large diameter saw pipes, ductile iron pipes and seamless tubes. The company projects better and sustainable productivity and profitability supported by its sustained healthy order book.

Considering the present CMP of Rs.650 odds it is trading at a PE Ratio of roughly 6-8times of its present earnings which seems to be quite cheap compared to its peers which are trading roughly at 20 times of its earnings and also considering the robust growth prospects the company have. It has touched a high of Rs.1221 in the last 52 Week and a low of Rs.375 in the last 52 Week. The stock has almost corrected by 50% in the recent phase of market correction and is available at a very attractive price currently and a safe bet if one wants to add it to his portfolio as a medium-long term investment.

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