We initiate a buy call on Man Industries with a target price 80 for a period of 1 year. Short term traders can buy this stock for target of 58 in 1 month.

Valuation rational for the company is strong sales growth expectation, stable margins, very strong balance sheet with book value of Rs. 80 per share and value to be unlocked in Real Estate business.

Although results were a huge dampener for the stock, stock has already showed a correction of 12%.

Sales for the quarter increased by only 1.5% at 322 crores versus our expectation of 350 crores. EBITDA for Q1 FY09 was down by 27% at 29 crores versus 39 crores in the same year last quarter. EBITDA margins stood at 8.9% versus 12.2%.

Company also reported extraordinary items amounting to 9.8 crores as realized Foreign exchange loss on account of forward contracts, reducing Net profit to 2.8 crores.

Company has a debt of USD 50 million, out of which 25 million USD is unutilized. In case the debt is converted (present conversion rate of 115 re per share). Company’s earnings will get diluted by 25% at Equity of 33 Crore versus 26 crores currently.

However conversion is unlikely considering current price of 115 Rs. Per share, in which case company’s Interest cost will almost double at around 80 Crore on same level of debt, which will dilute earnings to around 100 crores for FY12 onwards. However company is still a very attractive buy for long term investors with valuations at around Rs. 90 per share.

HIGHLIGHTS:-

• 3 August: - Man Industries reported a dismal 1 quarter result, with bottom line at 2.8 crores versus\ expected 18 crores. Bottom line also included extraordinary items of 9.8 crores as realized Foreign exchange loss on forward contracts. Net Sales improved by 1.6% at 322 crores versus our expectation of 350 crores.

• July 2 :- Delhi HC Rejects Man Industries (India) Limited's Plea Challenging GAIL (India) Limited's Re- Tending.

Man Industries was Lowest bidder for 3 out of 4 sections of Dahej-Vijapur pipeline of GAIL India Ltd. Total project worth was Rs. 800 crores. Man Industries had appealed to the HC tribunal against GAIL, however HC rejected the plea. Man Industries bid at 907$ was lowest for these 3 sections however Jindal SAW bid for the

4 section was at 680$ per tonnes. Further details and reason for cancellation not available.

• Jun 22, 2009:-Man Industries reported a substantial rise in standalone net profit for the quarter ended March 2009, registering 36.84% growth over prior year period. During the quarter, the profit of the company rose 36.58% to Rs20 crores from Rs14 crores in the same quarter previous year.

• Jun 21, 2009:- Indian pipe making company MAN Industries, has withdrawn its plans of manufacturing $ 100 million plant at little rock port in USA. Company already had purchased land and some equipment for the same.

• Apr 29, 2009:- Pipe manufacturer MAN Industries India Limited (Mumbai), has secured a $335 million deal from the Middle East to be executed this financial year. The contract involves supplying pipelines for companies in the oil and gas sector, will be executed this fiscal year.

• Apr 29, 2009:- MAN Industries is also bidding for projects worth $1 billion and has emerged as the lowest bidder for international and domestic projects valued at $221.4 million. Contract details are expected to be announced soon. With the pipeline contract, the company's order build-up is about $402.6 million.

• August 07, 2008:- Promoters of Man Industries have increased their stake to 45% in the company by acquiring approximately 1 percent shares through open market on NSE and BSE on 5 august 2008.

Investment Arguments

With total capacity of 1 mn tpa being equally divided between HSAW and LSAW segments; MIL’s (Man industries limited) positions itself as one of the major player of pipe manufacturers, which will attract more pipe projects in domestic as well as international market. More opportunities will arise from oil and gas sector projects.

• Robust Order Book:- Securing the latest order of $335 mn from Persian gulf region, MIL’s order book stands about Rs 2000 Crore. Company is also bidding for other projects worth 5000 crores.

• Capacity Expanded To Escalate Growth:- the company’s 3 HSAW production line started at Anjar in Gujarat end of last year has now been streamlined. It has raised the MIL’s capacity to 1 million tonne. Entire expansion happened in the HSAW segment which has equally divided total capacity between HSAW and LSAW segments. Anjar facility is provided with central and sales tax exemption for 11 yrs And Excise Duty exemption for 5 yrs.

• Reality Expedition: MIL recent venture into reality sector through its subsidiary MAN Infrastructure is executing two commercial projects in Bandra and Vile Parle and one residential cum commercial at Nerul.

Man Infrastructure is privately held with MAN industries holding an equity stake in the company. Man infrastructure with its subsidiary are involved in infrastructure, residential, industrial and commercial projects.

Consolidated top- line of the company for the full year ended march 2009 increased by 25.5 % to Rs 1882.93 Crore as compared to the previous fiscal year.

The absolute operating profit fell by 10.20 % Rs 151.09 Crore and OPM dropped 320 bps to 8.02 % leading PBIDT to drop by 10% to RS 151 Crore.

The interest cost and the depreciation allowance during the period increased by 43.06% and 24.21% to Rs 44.95 Crore and Rs 34.99 Crore respectively. Hence profit after tax= dropped by 33.3% to Rs 47.43 Crore.

Company Description:

MAN industries limited, member of The Man Group (UK), an ISO – 9001 company was incorporated on 19th may 1988 with a project to manufacture aluminium extrusions. The company now operates in 2 segments: Manufacturing of pipes and Construction and Real Estate division.

The Company is a leading Manufacturer and Exporter of large diameter Carbon Steel Line Pipes for various high pressure transmission applications for Gas, Crude Oil, Petrochemical Products and Potable Water. The company has manufacturing facilities for Longitudinal Submerged Arc Welded (LSAW) & Helically Submerged Arc Welded (HSAW) Line Pipes and also for various types of Anti-Corrosion Coating Systems. The Company also owns modern facilities for manufacturing of Aluminium Extrusion Products.

Company is currently 4 largest pipe manufacturer in India after Welspun Gujarat , Jindal Saw and PSL Limited.

In June 2008, Man Industries (India) Limited made an announcement that it has diversified into the Real Estate Sector.

India together with Japan, Europe and China has emerged as one of the global hub for pipe production. However penentration level of piepelines in oil and gas transportation is low at 32% in india as compared to 59% in USA and 79 % globally. The low penentration level represents the huge scope for growth of pipe industry.

The outlook of the pipeline sector is strongly linked to growth in Exploration and Production (E&P) activities in both Domestic and international market, which is being driven up by strong crude oil prices. Strong growth expected in infrastructure, power, construction and housing sector would also lead to a spurt in the demand for pipes.

The Indian pipe producers have emerged stronger to face global competition by continuously expanding their capacities, and have won several certifications and accreditations from major oil and gas companies across the world. India is also becoming a major export center to countries like USA, Europe and Middle East.

Valuations:

With 400,000 MT HSAW expansion benefits in Anjar, Gujarat, with this expansion Company’s total capacity has reached 1 MTPA (million tonnes per annum). Company has canceled its US capacity expansion plans and is not expected to incur any major Capital Expenditure in near future.

We expect a 15% annual growth in top line for next 3-5 years, with EBITDA multiple of around 10%.

At estimated EBITDA of Rs. 198 Crore and Rs. 225 Crore for FY10E and FY11E, Company is currently trading at EV/EBITDA multiple of 2.7 and 2.2 for FY10E and FY11E, versus Historical EV/EBITDA multiple of 5 for both Company as well as Industry.

We expect Company to post EBITDA margins of 9.5%-10% for FY10E and FY11E. Translating into an approximate EPS of Rs. 22 and Rs. 31. At current Market price of 45, it translates into P/E of 2.1 and 1.4 respectively.

Real Estate Foray: MIL’s subsidiary, Man Infra, is currently executing two commercial projects in Bandra and Vile Parle, and one residential cum-commercial project at Nerul. We are not valuing subsidiary due to lack of public information, but our conservatives estimate put the NAV of the land around Rs.150 crores, which comes at around Rs.20 per equity share.

We are initiating a buy call on Man Industries for Long term investors who can hold for a period of 1 year with a target price of Rs. 80-90.

Key Risks:

During 2007 and 2008 when prices of crude oil were trading at high, which led to a huge spurt in demand of pipelines in the global oil and Gas industry. While key players including Man Industries have increased their capacities/supply, sudden crash in crude oil prices has dampened demand.

Man Industries which has more than 70% of its income from exports is highly sensitive to global crude oil prices and drop in crude prices below 40$ over a sustainably long period will trigger a downward revision for the stock.

Order book size remains a key issue for the company, Although company has Order book size of 15 18 months of sales, in case outstanding order book falls below 8 months, it would be difficult to sustain/ maintain future projection.

Unexpected increase in prices of HR coils or HR plates: - Any increment in raw material prices will seriously impact profits. This industry is highly raw material intensive with raw material cost accounting for more than 70% of total cost of steel.

Fluctuation in Currency Exchange Rate.

Increasing sea freight This is another key component due to higher imports and exports.

Currently the stock is stuck in a narrow range and is still 70% down from its 2007 highs.

Over last 6 months stock has also underperformed its bigger competitors like Jindal Saw and Welspun Gujarat which have risen by 250% and 350% respectively while Man Industries has rise by a little more than 100%.

From valuations point stock is available at P/BV of 0.6, which is very attractive for a company like this.

Share price will get major upside above 58, beyond which it can go to 90-100 levels.

In short term 58 remains a target as well as resistance for the stock.

Short term traders can buy this stock for target of 58 in 1 month.

Currently the stock is stuck in a narrow range and is still 70% down from its 2007 highs. Over last 6 months stock has also underperformed its bigger competitors like Jindal Saw and Welspun Gujarat which have risen by 250% and 350% respectively while Man Industries has rise by a little more than 100%.

From valuations point stock is available at P/BV of 0.6, which is very attractive for a company like this.

Share price will get major upside above 58, beyond which it can go to 90-100 levels.

In short term 58 remains a target as well as resistance for the stock.

Short term traders can buy this stock for target of 58 in 1 month.

MAN INDUSRTIES is in a long term uptrend. The stock is likely to correct in a short term period to around 43-44 levels, where one can take a long position in the stock for a Target of 58-60 for a holding period of 3-4 months.