Buy Srikalahasthi Pipes target Rs 386: Reliance Securities

Reliance Securities has a buy call on Srikalahasthi Pipes with a target price of Rs 386.

The current market price of Srikalahasthi Pipes is Rs 350.95.

Srikalahasthi Pipes, incorporated in the year 1991, is a Small Cap company (having a market cap of Rs 1356.14 crore) operating in Iron and Steel sector.

Srikalahasthi pipes (SPL) closed over 2 per cent higher outperforming the CNX Mid-cap index by over 1 per cent.

SPL is an Andhra Pradesh based integrated manufacturer of Ductile Iron (DI) pipes. Since it is integrated, it enjoys significant competitive advantage, while several cost-optimization measures – including commissioning of Sinter Plant – has led to sustained margin expansion.

Lack of adequate sanitation has been prompting the government to focus on improving water supply and sewerage infrastructure through multiple schemes like JNNURM & Swachh Bharat Mission and “Smart Cities Mission”. Thus we believe that the demand for DI pipes would witness a healthy growth in medium to long-term.

DI pipes – which are widely recognised as the industry standard for modern water and waste water system – find application in water transportation and sewage management With nearly 75 per cent market share in Southern & Western markets augers well for SPL, as the industry enjoys strong entry barriers for being capital intensive having long gestation period.