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G. Madhan

THE fixed deposit programme of SAW Pipes Ltd (SPL), a Jindal group company, is an attractive option for those with a penchant for risk. Given the company's strong fundamentals and attractive interest rate, an investment can be considered for one or two years.

An investment beyond that can be avoided, considering the risk involved due to the cyclical nature of the business. Investors can also avoid the six-month option, considering the high initial deposit requirement and the not-so-attractive interest rate.

Schemes and features: The company offers cumulative and non-cumulative schemes with the same interest rates. The non-cumulative scheme is paid at quarterly intervals. The cumulative scheme is compounded at quarterly rests and the annual yields for the same are 9.31 per cent for one year, 10.33 for two years and 11.5 for three years.

Under the cumulative scheme, there is also a six-month tenor option at 8 per cent.

Business prospects: SPL is in the energy transportation business and caters largely to the transportation of oil, gas and water for its on- and off-shore applications within India and abroad.

The company makes submerged arc welded pipes (for high-pressure applications used in the oil and gas sector), spiral pipes and seamless tubes. The company exports to West Asian, African and European countries. Over 75 per cent of its revenues are obtained through exports.

Hence, SPL's earnings are subject to fluctuations in currencies and the economic conditions of the countries that import its products.

Besides, the company's fortunes also depend on the cyclical nature of the demand for its products.

Financials: The company has witnessed steady growth of its topline in the last three years. However, for nine months ended June 2003, the net sales to Rs 382.8 crore, 1.6 per cent more than in the corresponding previous period. Post-tax profits, on the other hand, doubled to Rs 38.6 crore.

This was to a large extent due to the sharp drop in interest expenses. The operating profit margin is 20.6 per cent (16.1 per cent) and the net profit margin 10.1 per cent (4.9 per cent). The interest coverage ratio for the period is 2.8 (1.5).

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