| The booming oil and gas sector is swelling the order-books of pipe suppliers
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| Suppliers of pipes to the oil and gas sector are leveraging the current boom in their operating environment with their expansion projects coming on stream.
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| For instance, Man Industries recently commissioned its new production line for H-Saw (helical submerged arc welded) pipes and these facilities have a capacity of 200,000 tonnes a year.
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| Welspun-Gujarat Stahl has recently started the trial production of its plate-cum-coil mill by producing a wide plate of 4.5 metres. The company has also highlighted that this 1.5 million tonnes per annum (mtpa) facility will be fully operational by the end of FY08.
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| In addition, the investor sentiment has been buoyed by the recent decision of the RBI to expand the scope of the definition of infrastructure lending to include loans to projects involving the laying and maintaining of gas, crude oil and petroleum pipelines.
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| Companies involved in the pipe sector have enjoyed a strong performance in the September 2007 quarter, with no signs of weakness in demand from upstream oil and exploratory activities.
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| In the case of Welspun Gujarat, its operating profit grew by 92.8 per cent y-o-y to Rs 153.3 crore in the last quarter, while its net sales expanded 37.5 per cent to Rs 927.6 crore. Its operating profit margin also improved 470 basis points y-o-y to 16.5 per cent in the second quarter of FY08.
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| However, for Man Industries, the operating profit margin (excluding other income and export incentives) declined 130 basis points y-o-y to 7 per cent in the September 2007 quarter.
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| Going forward, growth for companies in this sector would be driven by their outstanding order-books — in the case of PSL, it was approximately Rs 2,350 crore at the beginning of November 2007, while for Welspun Gujarat Stahl it exceeded Rs 5,500 crore.
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| Stocks in this sector trade at reasonable valuations given their growth potential, for instance, PSL trades at 18 times estimated FY08 earnings, while Man Industries gets a discounting of 11 times estimated FY08 EPS.
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| Gateway Distriparks: JV boost
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 The Gateway Distriparks stock has gained over 10 per cent in the past week, aided by the company’s announcement that its JV with Concor to operate a rail inland container depot in Haryana became operational.
Along with the rally in the market, the stock has gained nearly 20 per cent over a month, despite little improvement in its financials.
Gateway’s September quarter results reflect the high growth and low profitability scenario afflicting the logistics sector. On a consolidated basis net sales went up by 67 per cent y-o-y and 33 per cent q-o-q. On a standalone basis too, the topline gained 22.4 per cent y-o-y and 34 per cent q-o-q.
However, at the operating level, Gateway has become a company with deteriorating profitability — its consolidated operating margin declined 1,750 basis points y-o-y and 570 basis points q-o-q to about 40 per cent. The total expenditure has increased due to higher transportation expenses and rising staff and labour costs.
The company attributes a large part of this to investment in buying rakes, the commencement of Punjab Conware CFS operations and a one-time payment to Punjab Conware staff. Growth in other CFS and rail operations and reduction in the contribution from 72 per cent of the total throughput to 69 per cent at the Mumbai CFS has further dented margins.
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| While revenues per TEU at Rs 7,093 have increased by 12 per cent, the operating profit per TEU is at just Rs 2,830, down by 22 per cent.
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| Analysts estimate that realisations will stabilise or improve in the next two quarters as the company ramps up its rail and CFS operations and benefits from container volumes.
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| While the CFS business, which currently accounts for 75 per cent of the company’s revenues, is expected to dip to about 68 per cent, its rail operations are expected to grow to 21 per cent of FY09 revenues with the cold chain expected to maintain its share at 11 per cent. The company trades at an expensive 21 times estimated FY08 earnings and 16-17 times FY09 earnings.
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| With contributions from Amriteshwar Mathur and Ram Prasad Sahu |
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