HARIOM PIPES

Scores on integrated steel-making

Hyderabad (Telangana)-based Hariom Pipes, the flagship of the Hariom group set up by late industrialist Hariom Golas way back in 1962, is today a leading integrated steel producer, with a diverse product portfolio consisting of mild steel (MS) billets, pipes and tubes, hot rolled (HR) coils, HR strips, sponge iron and scaffolding systems. The company’s products cater to a variety of industrial applications across multiple sectors.

The company operates two plants. Unit one located at Mahabubnagar district in Telangana manufactures finished steel products from iron scrap and sponge iron, while unit two located at Anantpur district in Andhra Pradesh exclusively manufactures sponge iron. Most of the sponge iron produced at unit two is transported to unit one and is used as a raw material for the manufacture of MS billets, HR strips, MS pipes and scaffoldings.

The company has more than 200 dealers and distributors, and has a stronghold in the southern market. Its dealers and distributors mainly sell MS pipes. The company also sells MS pipes and scaffoldings to certain developers and contractors directly as B2B sales. Market observers believe that the key differentiator in the case of Hariom is its range of product specifications in terms of thickness, length, quality, availability and customized products.

FISCAL STRENGTH

The company is doing extremely well on the financial front with compounded sales growth during the last five years being 38 per cent CAGR and compounded profit growing at a CAGR of 81 per cent. What is more, its prospects going ahead are all the more promising. Consider:

• Hariom is going from strength to strength. During the last six years its sales turnover has expanded from Rs 87 crore in fiscal year 2017 to Rs 431 crore in fiscal year 2022, with operating profit shooting up almost 10 times from Rs. 7 crore to Rs 68 crore and the profit at net level taking a high jump from Rs 2 crore to Rs 32 crore. The company’s financial position has got a major boost after the IPO launched last year. Its reserves stand at Rs 220 crore at the end of March 31, 2022 — almost nine times its equity capital of Rs. 25 crore. Hariom has to depend on borrowings for spurting its growth but its interest burden has remained around Rs 8 crore for the last 3 years, despite an almost two and a half times spurt in sales – from Rs 161 crore in fiscal 2020 to Rs 431 crore in fiscal 2022 — and the operating profit spurting from Rs 23 crore to Rs 56 crore.
• The integrated nature of its operations is a major plus point for the company. It uses iron ore to produce sponge iron which is then processed across various stages to manufacture its final products — MS pipes, billets and scaffolding — making its manufacturing process cost-effective. All intermediate products required for the manufacture of its final products are produced in- house, such as sponge iron, MS billets, and HR strips. The finished product from each of its processes acts as an input for the next alternation of its product mix as per market demand and supply, market price and the available gross margins. For example, its induction plant output — MS billet — can be segregated and sold independently, or can be provided as an input for its rolling mills. Further, the output of its rolling mills — MS strips — can be sold independently as well as used as an input for manufacturing MS pipes. This ability to change the product mix as per market demand and supply dynamics is one of the major strengths and differentiators of the company.

PRICE CUSHION

• Thanks to its manufacturing process and intelligent backward integration strategy, the company’s cost of production is comparatively lower and this helps it maintain a highly competitive pricing policy to easily foil competition from other players in the industry. At the same time, its margins are also quite comfortable.
• Hariom has embarked upon an ambitious expansion programme through both organic as well as inorganic routes, with a view to building scale and expanding its portfolio of value-added products. In order to expand its MS pipe capacity, the company has set up two additional pipe mills adjacent to its existing unit one. This will increase the capacity from the present 84,000 mtpa to 1,32,000 mtpa. It has also expanded its furnace unit capacity from 95,832 mtpa to 1,04,232 mtpa. As far as the inorganic route is concerned, the company has a galvanized pipe and cold roll coil unit of RP Metal Sections Pvt Ltd spread over 13.83 acres of land located at SIPCOT industrial growth centre, Perundurai, Tamil Nadu, at a price of Rs 55 crore.

SHARE PROMISE

The company’s stock, which was issued at a price of Rs 153 last year at the time of the IPO, is now quoted around Rs 489.

In view of the current uncertainties in the stock market, the stock price may turn a little subdued. This will be an excellent opportunity to accumulate at every decline.

PERFORMANCE INDICATORS (Rs. in crore)

GREENPANEL INDUSTRIES

Riding demand for its MDF

Greenpanel Industries, India’s largest manufacturer of wood panels, has state-of-the-art manufacturing plants located in Uttarakhand and Andhra Pradesh. It is engaged in the manufacture of top-quality Medium Density Fibreboard (MDF) — in which it is the largest manufacturer in Asia — plywood, decorative veneers, flooring and doors. The company is known for its culture of innovation and sustainability. Its MDF is made with 100 per cent renewable agro-forestry wood. The combined production capacity of the company’s plants is 6,66,000 cubic metres of MDF, which is complimented by its robust distribution network of 3,000-plus outlets spread across the country.

Greenpanel has made rapid strides during the last four years between 2019 and 2022, with the compounded sales growth during the last 3 years working out at 39 per cent and the profit CAGR growing at 91 per cent. This robust performance has led to a tremendous spurt in the stock price, from just Rs 25 to Rs 625, indicating a 2,400 per cent spurt. However, the disappointing performance during Q3 FY2023, coupled with the global economic and geopolitical uncertainties, pushed down the stock price to Rs 260. This is a highly attractive price level to accumulate these stocks. What is more, prospects for the company going ahead are also quite promising. Consider:

• According to experts, India’s MDF industry is wellplaced to replay its over 30 per cent CAGR witnessed during 2019-2022 and flourish as an over Rs 15,000-crore industry over the next five years. Increasing acceptance of the product and its growing applications (e-commerce, packaging, white goods, etc., apart from readymade furniture) should drive this growth. According to Systematix Institutional Equities, a leading brokerage, high input costs (resin, timber, etc.) and healthy collaboration among leading MDF players have helped them maintain product prices in the domestic market, notwithstanding the tough competition from imports. What is more, the MDF industry is growing at a healthy pace even in the prevailing challenging environment, where inflationary pressures are hurting consumer sentiments. At the same time, MDF imports have been rising, which has limited the volume growth of domestic players.
• The market leadership of Greenpanel in the fast- growing MDF industry is a major plus point for the company in view of the rising acceptance, strong demand revival in housing units and readymade furniture, and robust financials.

DEEP BLACK

• Despite the challenging competition from imports, the company is going from strength to strength on the financial front. During the last four years, its sales turnover has expanded by more than two and half times – from Rs 599 crore in fiscal 2019 to Rs 1,625 crore in fiscal 2022, with operating profit rising from Rs 77 crore to Rs 133 crore and the profit at net level shooting up almost seven times from Rs 35 crore to Rs 240 crore. The company’s financial position is very strong, with reserves at the end of March 2022 standing at Rs 940 crore – almost 78 times its equity capital of Rs 12 crore. The company is steadily reducing its debt, which has come down from Rs 587 crore in fiscal 2019 to Rs 316 crore in fiscal 2022, and its interest burden has come down sharply from Rs 48 crore in fiscal 2020 to Rs 17 crore in fiscal 2022.
• The sudden rise in demand for readymade furniture during the Covid pandemic period drove a strong turnaround in the company’s financials, but of late there have been large imports which have adversely affected MDF companies’ profit margins and stock prices. But experts feel the trend will be reversed soon. Maintains ICICI Securities, “We continue to like Greenpanel for its strong net cash balance sheet, leadership in the MDF segment, which has strong growth prospects, and attractive valuation.” Also, according to ‘Simply Wall Street’, “Greenpanel’s earnings over the next few years are expected to increase by 23 per cent, indicating a highly optimistic future ahead. This should lead to more robust cash flows feeding into a higher stock value.”
• The management is optimistic about the near term. It expects domestic volumes to grow by 12 per cent yoy and a flatish export performance for fiscal 2023. It also expects to maintains MDF OPM over the next 12-18 months, thereby moderating to 27-28 per cent on a long-term basis for fiscal 2024. It targets either improving or maintaining OPM over 3-5 years, and expects domestic volume growth of 14 to 15 per cent yoy.

EXPANSION MODE

Greenpanel has embarked upon an ambitious brownfield expansion programme to raise the MDF capacity by 231,000 cbm at its Andhra Pradesh plant at a cost of around Rs 600 crore. This expansion is expected to be completed by Q2 of fiscal year 2025. As the demand for MDF is expected to increase going ahead, this expansion would give a big boost to the company’s topline as well as bottomline after fiscal 2026.

The company’s stock price, which has tumbled down from Rs 625 to Rs 260, is quite an attractive price level to start accumulating these stocks.

PERFORMANCE INDICATORS (Rs. in crore)