Stock Idea - Jindal Saw

Recommendation: Buy

CMP = Rs 1,178

Price target: Rs 1,302

Key points:

• Jindal Saw, the largest pipe manufacturer in the country, has recently bagged a number of orders aggregating to $250 million. This takes its order book to around $850 million, and the same is executable by January 2009.
• For the quarter ended December 31, 2007, we expect the company to report a 4.2% decline in its net sales, as the US division was operational only till October 2007. I expect the net profits to rise by 19.3% to Rs 71.7 crore as the operating profit margin (OPM) is expected to improve to 13% from 11.4% in the same period last year.
• Improved outlook of the industry has also led to an expansion in the valuation multiples of the entire industry. I have valued the company on the sum-of-the-parts basis. In my opinion, the core business of the company is valued at 13x its CY2009E earnings and the investment value at a 75% discount to its current value.
• At the current market price of Rs 1,178, the stock is trading at 13x its CY2009E earnings and is available at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 6.9x.
• I maintain Buy recommendation on the stock with a revised price target of Rs 1,302.