On November 24, 2022, the board of multibagger company Hitech Pipes Ltd. considered and approved an Increase in the Authorised Share Capital of the company. Sharekhan, a leading brokerage firm has given a Positive rating for the stock of Hitech Pipes Ltd. The company reported a healthy beat on consolidated revenues, increased by 30% y-o-y to Rs. 598.5 crore, led by strong volume growth of 32% y-o-y to 0.86 lakh tonnes. The Current Market Price (CMP) of Hitech closed at Rs. 799, up by 3.4% on NSE.
Fund-raising influenced bullish share price
"On November 24, 2022, the board of Hitech Pipes Ltd. has considered and approved Increase in Authorised Share Capital of the company from existing Rs. 14,00,00,000 consisting of 1,40,00,000 equity shares of Rs. 10 each to Rs. 24,00,00,000 consisting of 2,40,00,000 equity shares of Rs. 10 each and consequent alteration in Capital Clause of the Memorandum of Association of the Company," board of Hitech Pipes informed the stock exchanges. This small-cap stock has a market capitalization of Rs. 983 crore. Its share price surged by 25% in the last 5 days on NSE.
Strong Q2FY23 earnings report
Its net profit was up 8% y-o-y to Rs. 10.9 crore. The company's volume grew by 32% y-o-y to 0.86 lakh tonnes leading to higher-than-expected consolidated revenues. The operating margins at 3.9% (lower 132bps y-o-y) and EBITDA/tonnes of Rs. 2758 were marginally better than expectation (our estimate of Rs. 2700/tonnes). The company made Rs. 6.51 crore provision towards expected credit loss on an OEM customer leading to 57% y-o-y dip in net profit at Rs. 4.3 crore.
Key upside: volume guidance
It retained its volume guidance of 3,75,000 tonnes (a 36% y-o-y growth) for FY2023 while expects EBIDA/tonnes to revert to Rs. 3500-400/tonne in two to three quarters. It expects further Rs. 4-5/kg correction in HR coil prices over 1-2 months while channel inventory is expected to built up from December 2022. Net working capital days reduced to 50 days from 64 days in Q1FY2023. Net debt reduced by Rs. 33 crores during H1FY2023. It would be targeting 25% y-o-y volume growth every year.
According to Sharekhan, "Post Q2, the steel price correction is expected to be limited with expect channel inventory re-stocking from December 2022 onwards. The upcoming value-added capacities in H2FY2023 would aid in volume growth and better operational profitability. The company has strong demand growth drivers such as low per capita domestic steel pipes consumption, infrastructure investments over the next five years, and government schemes like Jal Jeevan Mission, among others. We have introduced our FY2025E earnings in this note."
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