Hariom Pipes Ltd: A Capex Play!

Arihant Note on Hariom Pipes

Key Highlights :point_down:

-Debt to be Zero by FY27E
-Q4 would be the best quarter
-Entering new states (Gujarat, Maharashtra & Rajasthan)
-Guidance of FY26 is intact (2500 Crores)
-WC will improve going forward

No Recommendation
Biased & Invested

3 Likes

The recording is out : https://www.youtube.com/watch?v=TR2XA_Bzdg4

NO OF EQUITY SHARES 2.89
FY24 FY25 FY26
REVENUE 1290 1754 2404
EBITDA 154.8 211 288
PAT 90.3 123 168
EPS 31 42 58
CURRENT P/E MULTIPLE 29
CURRENT SHARE PRICE 565
FORWARD MULTIPLE 13 10

This is a very basic estimate of the company’s forward earnings that I have created. I have taken the following assumptions in the table:

  • I am assuming the fact that they will double their topline from FY23 in FY24, as the had mentioned.
  • I am assuming the Ebitda margins to be their average ebitda margins of 12% and their pat margins of 7%.
  • I have assumed that to have a top line of 2400 Crs by FY26, they will have to grow by anywhere between 35-38% in next two years (keeping in mind all the factors like capex and market size and growth and their capacity utilisation).

Fundamental things that I understand will play a role in their growth story are as follows:
Backward integration: Since they are backward integrated, they have stability in their raw material prices, which promises a stable margin if not better.
Sectoral growth: Consumption is in their favour, overall market is growing and is very unlikely to go down in the medium term.
Operating leverage: Operating leverage is going to play out for them in the next quarters.

What I can not understand is the antethesis in the comnpany’s core operations and corporate governance and the things that can go wrong for them. I want to understand that more deeply. If anybody who’s tracking thgis closely can throw some light on this.
It will really help new investors to get a deeper understanding.

2 Likes

Preciously and Very Neat estimates… Even I agree with all your assumptions + Triggers…
Trading at very reasonable valuation of below 10 in FY26 Estimates

For antithesis:

  1. Concentration in Revenue (Top 10 customer contributes over 50% of sales)
  2. Cash Flow + Debt Saga (Weak CF need to be fund with Debt or Equity… If CF hasn’t improve then whole growth + OP lvg would be messed)
  3. China Dumping of Low quality & price Pipes, (Although Hariom has advantage but this can harm margin profile)
  4. Almost all players in ERW industry is doing Capex, this can again hamper profitability if Supply > Demand
  5. Some Related Party transactions (But I feel it’s okay as every company has such things)
2 Likes

Anti dumping duty on China is on till 2028

If I am not wrong then Anti-dumping duty is on Stainless Pipes & not on ERW Pipes

I read the concalls, management commentary, investor presentations, got pretty excited. Just remembered today that I forgot to check one of the main things i.e. Operating cashflows. Operating cashflows of the firm are negative! Can anyone give their views why is it the case and is it normal or can be a red flag?
Disc.- tracking position. No recommend to buy/sell