The commodity cycle has gained traction and started looking upwards. Crude oil price in international market has been hovering around $70-80, a rise of 60% in the last eight-nine months. This is likely to trigger an increase in oil & gas exploration activities around the globe. In addition, there are a large number oil and gas pipelines which are relatively old. For instance, more than half of the pipelines in the US are above 30 years and need to be replaced. As per reports, investment in oil & gas pipelines only in US is estimated to increase by 40% in 2009-10. Indian pipe makers who have a strong presence in overseas market are set to benefit from this, and Oil Country Tubular is one of those.
Oil Country Tubular (OCTL) is a producer of pipes and tubes required in the oil drilling and exploration industry. OCTLs single plant has an installed capacity of 10,000 tonne per annum (TPA) of drill pipes, 50,000 TPA of casing pipes and 15,000 TPA of production tubing. It also provides services such as tool hardening, internal plastic coating for pipes and inspection, maintenance and reconditioning of drill pipes besides manufacturing accessories and spare parts.
During the economic slowdown, many companies had started working on their plans of capacity expansion. They could foresee economic revival and the subsequent increase in demand for their products and thus embarked upon increase in capacity. On the similar lines, Oil Country Tubular plans to treble its casing manufacturing capacity to 150,000 tonne per annum by March 2010. It also has plans to double capacity of drill pipes to 20,000 tonne. As mentioned earlier that oil and gas exploration activities have gained traction and therefore it should not be a problem for OCT to market its products.
The company has done exceptionally well over the last five years with its net profit having grown CAGR of 145% to Rs 65 crore in FY09. Net sales grew at 33% in the same period. The company is almost debt free with all outstanding term loans being repaid during 2008-09. This is also evident from its interest obligation for FY2007-08 and FY 2008-09. During FY 2007-08 company had to pay an interest amount of Rs 37.5 crore while during FY 2008-09 it had to pay just Rs 2.1 crore.
The performance for the 6 months ending Sep'09 had been good on both the grounds of turnover and profit, but there's still non-clarity as to what's the reason behind a steep fall in the sales for Dec'09 quarter. The sales dropped to just Rs 30 crore while it was Rs 120 crore for Dec'08. Telangana issue could be one of the reason, OCT being a Hyderabad based company. However, that adds an element of risk, especially since the management has not come out with the details on the same. Rest apart, the valuations for the company are in line with the peer companies, and good numbers for the Q4 shall re-instate the confidence of the shareholders. I would like to add here that all those holding the stock should continue holding while the ones sitting on the sideline should wait for further update from the management or even the Q4 results.
Oil Country Tubular (OCTL) is a producer of pipes and tubes required in the oil drilling and exploration industry. OCTLs single plant has an installed capacity of 10,000 tonne per annum (TPA) of drill pipes, 50,000 TPA of casing pipes and 15,000 TPA of production tubing. It also provides services such as tool hardening, internal plastic coating for pipes and inspection, maintenance and reconditioning of drill pipes besides manufacturing accessories and spare parts.
During the economic slowdown, many companies had started working on their plans of capacity expansion. They could foresee economic revival and the subsequent increase in demand for their products and thus embarked upon increase in capacity. On the similar lines, Oil Country Tubular plans to treble its casing manufacturing capacity to 150,000 tonne per annum by March 2010. It also has plans to double capacity of drill pipes to 20,000 tonne. As mentioned earlier that oil and gas exploration activities have gained traction and therefore it should not be a problem for OCT to market its products.
The company has done exceptionally well over the last five years with its net profit having grown CAGR of 145% to Rs 65 crore in FY09. Net sales grew at 33% in the same period. The company is almost debt free with all outstanding term loans being repaid during 2008-09. This is also evident from its interest obligation for FY2007-08 and FY 2008-09. During FY 2007-08 company had to pay an interest amount of Rs 37.5 crore while during FY 2008-09 it had to pay just Rs 2.1 crore.
The performance for the 6 months ending Sep'09 had been good on both the grounds of turnover and profit, but there's still non-clarity as to what's the reason behind a steep fall in the sales for Dec'09 quarter. The sales dropped to just Rs 30 crore while it was Rs 120 crore for Dec'08. Telangana issue could be one of the reason, OCT being a Hyderabad based company. However, that adds an element of risk, especially since the management has not come out with the details on the same. Rest apart, the valuations for the company are in line with the peer companies, and good numbers for the Q4 shall re-instate the confidence of the shareholders. I would like to add here that all those holding the stock should continue holding while the ones sitting on the sideline should wait for further update from the management or even the Q4 results.
Note: The stocks discussed at MPS thru blog postings are neither a part of “Business Insights” issue nor a “Penny Stocks” which we reco/publish for paid subscribers. These are just stock specific views by MPS team; one MUST do the due diligence before doing any investment based on our reco.
To contact the Lead Associate on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com
