Overcapacity cuts profits for Jindal SAW.

Byline: Adarsh Gopalakrishnan

Investors should sell their shares in pipe producer, Jindal SAW, given that profitability in the sector is hampered by overcapacity. At the current market price of Rs 172, Jindal SAW trades at 18 times the trailing 12-month earnings. Given the company has few advantages over peers in terms of input costs, the premium over Maharashtra Seamless, Welspun Corp and Man Industries is unjustified.

The welded pipe supply glut squarely leaves pricing power in the hands of the buyer. Couple this with input cost pressures resulting from the shortening steel cycle and it makes for a challenging environment for pipe makers. The company has run up 32 …