FII Stake Jumps 6.9% In This Metal Stock, Sharekhan Sees Strong Upside; Right Time To Buy?

Among India's top five pipe firms, Hitech Pipes is one of the players in comprehensive piping solutions, with an installed capacity of 5.8 lakh metric tonnes. The firm produces a wide variety of steel tubes that are used in infrastructure, telecom, defence, power distribution, railways, airports, real estate, automobiles, and agriculture, among others. Over 1200 SKUs and more than 450 dealers make up Hi-Tech's extensive network, which spans 17 Indian states. Reliance Industries Limited, TATA, Adani, Airtel, IPH, Shimla, and AAI are some of the company's clients. Hitech Pipes is one of the stocks in the building materials sector in which the FIIs have raised their stake from 1.82% in the quarter ended June to 8.72% in July.

As per a report from Sharekhan, Hi-Tech is on a strong growth journey, led by structural demand drivers such as low per capital domestic steel pipes consumption, infrastructure investments over the next five years, and government schemes like Jal Jeevan Mission, etc. The company's capacity expansion plans over the medium to long term without leveraging the balance sheet are expected to capture the huge growth potential for the domestic steel pipe industry.

"The company is expanding its capacity to 10 lakh TPA by FY2025 end. The company's capacity expansion plans over the medium to long term without leveraging the balance sheet are expected to capture the huge growth potential for the domestic steel pipe industry," the brokerage firm Sharekhan said in a note.

Company Outlook - Structural drivers to aid strong earnings growth

"Hitech Pipes Limited (Hitech), is expected to benefit from expected bottoming out of steel prices (average NCDEX steel futures corrected by ~6% in Q2FY2025 till date versus Q1FY2025) which has nullified price spread (Rs. 3000-4000 per tonne during Q1FY2025) with secondary pipe manufacturers. Consequently, secondary pipe manufacturers remain under stress, while the company is expected to reap strong volume growth tailwinds in H2FY2025 leading to achievement of 30% y-o-y volume growth guidance for FY2025. Considering strong long-term demand outlook, it is on the path to expand its capacity to 2MTPA from 1 MTPA in FY2025E in the next 3-4 years for which it has received its board's approval to raise up to Rs. 600 crore via issue of equity shares," as per Sharekhan.
"Incremental capacities would involve new product segments and geographies providing a fillip to sustainable healthy volume growth and improvement in operational profitability (led by increased value added product share). It also has an early mover advantage in catering to solar projects through its recently commissioned the Sanand facility as it has started with being a preferred vendor for upcoming world's largest renewable energy park at Khavda, Gujarat," the brokerage further added.

Hitech Pipes Upcoming Dividend

"The Board of Directors in their meeting held on May 11, 2024, have recommended Rs. 0.025/- per share on Equity shares of Face Value of Re.1/- each as the Final dividend for financial year ended on 31 March, 2024 to shareholders of the company. The Dividend, if declared, will be credited/ dispatched within 30 days of the conclusion of the AGM. The company has fixed Saturday, 14th day September 2024 as record date for the purpose to determine the shareholders who are entitled for Dividend," said Hitech Pipes in a statement.

Buy Hitech Pipes?

"Hi-Tech is expected to benefit from sustained strong demand, led by government-led infrastructure investments aided by bottoming out of steel prices. The company continues to focus on capacity expansion and increasing share of value-added products mix to achieve higher scale with improved operational profitability. Funds raised through a preferential issue would help it balance growth and leverage to achieve a one-million capacity target while it mulls its next phase of capacity expansion to reach 2-million tonne capacity in the next 3-4 years. Hi-tech has risen over 260% since our initiation report dated August 24, 2021. We stay Positive on the stock and expect a 25% upside, increasing our valuation multiple considering its strong net earnings growth outlook over FY2024-FY2027E," said the brokerage company Sharekhan.