Gandhi Special Tubes Limited is engaged in manufacturing and marketing of welded and seamless steel tubes of different sizes and specifications and cold formed Coupling Nuts

1. fundamental analysis of Gandhi Special Tubes
1
FUNDAMENTAL ANALYSIS
OF
GANDHI SPECIAL TUBES LIMITED

2. fundamental analysis of Gandhi Special Tubes
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Script ID GANDHISP
Diluted Eq. 14698616
52 week range 163/118
Market cap
(Crores)
176
Fiscal YE FY12 FY13
Total sales
(Crores)
106.52 95.93
EBITDA % 43.37 36.58
PAT % 24.11 23
EPS 17 13
P/E 8.58 11.83
P/B 1.59 1.52
EV/EBITDA 3.6 6.2
ROE 18.51 12.87
Dividend
Yield
4.0 3.85
Category % Holdings
Promoters 73.00%
NRI’s 0.00%
Indian Institution 0.06%
Nationalised Banks 1.92%
Domestic Companies 1.58%
Public shareholders 26.73%
Directors Nil
Gandhi Special Tubes
CMP: INR120 Buy
Gandhi’s results were in line with EBITDA margins
of 36.58% (v/s est 43.37%) and EBITDA of
INR35.09cr (v/s Last year of INR46.20cr).
Net sales Declined by 9.09% YoY to INR 95.93cr
(v/s Last year INR 106.41 cr), driven by a
volume growth Declined by 14.14%
The GSTL is a virtual monopoly in this industry
segment, consistently generating high ROCE and
Free cash flow. Its dividend yield of 4% along with
the safety of Rs. 18/share cash makes it an attractive
stock.
Key highlights from earnings call:
India’s Long term Growth story is still
intact through currently there is slow-down
in economic Growth. Once Inflation is
under control and Interest rates are down,
growth in India economy is likely to lead to
increased demand for company’s product.
CAGR growth of GSTL’s is 11.09%.
EPS has been decreased from Rs17 to Rs13
The consumer story is in a stage of rapid growth
in India. GSTL is well placed to supply tubes to
various consumer durable companies.With the
foray into the Engineering segment, sales might
increase in the near future.
The Book value for GSTL has increased at a CAGR
of 20% over the past 5 years. (adjusting for stock
split 1:2 in 2008 )
GSTL currently derives 80% of its revenues from
the automobile sector and the rest from
refrigeration and engineering.
Company is debt free and has invested surplus
cash in capacity expansion & wind mills
forcaptive power consumption.
Sagar Shah
+91 9821743190
Saggy_cool98@yahoo.com

3. fundamental analysis of Gandhi Special Tubes
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Company history and business:
 Gandhi Special Tubes manufactures and sells automobile components, primarily in India It was
incorporated in 1985 and set up its first plant at Halol, Gujarat in technical collaboration with
German manufacturer Benteler.
 It offers a range of small and big diameter seamless and welded tubes along with tubular
components, such as condensers, compressor parts, fuel injection tube assemblies, and
hydraulic tubes.
 GSTL have also started manufacturing cold formed tube nuts for Fuel Injection Tube Assemblies
as well as Hydraulic Tube Assemblies.
 GSTL currently derives 80% of its revenues from the automobile sector and the rest from
refrigeration and engineering.
Risk Concern
 The cost of Raw materials is more than 30% of the total cost incurred. Any increase in the prices
of raw materials (steel, for example) would put pressure on margins.
 The cost of power also eats into profit. However, the captive power consumption should reduce
power costs to a large extent in the coming quarters.

4. fundamental analysis of Gandhi Special Tubes
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GSTL: Partial List of Customers...
Client Name Sector
Matchwell Engineering Pvt.Ltd. Auto Ancillary
Sebros Industries Auto Ancillary
Imperial Auto Industries Ltd. Automobiles - Auto Parts & Equipment
Tata Engineering & Locomotive Co. Ltd. Automobiles - Auto Parts & Equipment
Maruti Udyog Ltd. Cars
Bajaj Auto Ltd. Cars- 2-3 Wheelers & Utility Vehicles
Mahindra & Mahindra Ltd. Cars- 2-3 Wheelers & Utility Vehicles
Ashok Leyland Ltd. Commercial Vehicles
Emerson Compressors
Larsen & Toubro Ltd. Construction & Engineering
Case New Holland Construction Equipment
Godrej Appliances Ltd. Consumer Products
Carrier Refrigeration Ltd. Deep Freezers
Voltas Ltd. Deep Freezers
Bharat Earth Movers Ltd. Excavators
Bharat Heavy Electricals Ltd Heavy Electrical Equipment
Bosch Rexroth India Ltd. Hydraulics
Vickers System International Ltd. Hydraulics
Steel Authority Of India Ltd. Iron & Steel
Tata Iron & Steel Co. Ltd. Iron & Steel
Lincoln Helios India Ltd. Lubrication Systems
Andritz Steel Plant & Other Projects
Gillander Steel Plant & Other Projects
Siemens Ltd. Steel Plant & Other Projects
SMS India Ltd. Steel Plant & Other Projects
Escorts Group Of Companies Tractors, Construction Equipment
BEML Commercial Vehicles
And many more…..

5. fundamental analysis of Gandhi Special Tubes
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GSTL COMPANY’S FINANCIAL STRENGTH
YE Mar FY12 FY13E
Per Share Data (Rs)
Adjusted EPS 17.48 13.19
CEPS 20.56 16.14
BVPS 94 102
DPS 6 6
Growth Ratios (%)
Total revenues 106.52 95.93
EBITDA 46.25 35.09
PAT 25.68 19.30
EPS Growth 13.41 -26.01
Valuation Ratios (x)
PE 8.58 9.10
P/CEPS 7.30 7.44
P/BV 1.59 1.17
EV/Sales 1.56 2.27
EV/EBITDA 3.60 6.20
Operating Ratios (Days)
Inventory Days 2.09 1.89
Receivable Days 8.73 8.01
Payables day 0 0
Net Debt/Equity (x) - -
Profitability Ratios (%)
ROE 18.51 12.87
Dividend Payout 29.58 39.97
Dividend Yield 4.00% 5.00%

6. fundamental analysis of Gandhi Special Tubes
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DIVIDEND HISTORY
Year Dividends
2008 5.00
2009 2.50
2010 5.00
2011 5.00
2012 6.00
2013 6.00
2014 6.00
Total 35.5
5
2.5
5 5
6 6 6
0
1
2
3
4
5
6
7
2008 2009 2010 2011 2012 2013 2014
dividend
dividend

7. fundamental analysis of Gandhi Special Tubes
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Why you should invest in GSTL
Stock is providing a good dividend yield of 5.00%
Stock is trading at 1.17 times its book value
Company is virtually debt free.
Company has good consistent profit growth of 20.00% over 5 years
Average P/E of Last 10 years is 9.0. Now currently P/E is 9.0
Average Dividend Payout for Last 3 years is 32.50%.
Return on Equity is 12.58%
PEG Ratio is 0.22 which is more attractive.
Altman Z score is 10(those that have low probability of bankruptcy have a score of greater than 3.0.)
Superior ROCE, Superior RoE, No debt, Terrific interest coverage coupled
with reasonable P/E and P/B make it an attractive stock to be in.
Margin of safety: It has cash of almost Rs. 18 per share. That’s almost 15%
of the current share price.
With the foray into the Engineering segment, sales might increase in the
near future.
The consumer story is in a stage of rapid growth in India. GSTL is well
placed to supply tubes to various consumer durable companies.

8. fundamental analysis of Gandhi Special Tubes
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DuPont Analysis of GSTL Gelatin
Return on Equity
ROE
2007 2008 2009 2010 2011 2012 2013
Net Income/Sales 0.21 0.25 0.28 0.34 0.29 0.28 0.23
Sales/Total Assets 0.96 0.98 0.62 0.71 0.73 0.71 0.58
Total Assets/Total Equity 1.07 1.06 1.06 1.04 1.04 1.09 1.09
0.00
0.20
0.40
0.60
0.80
1.00
1.20
AxisTitle
GSTL
2007 2008 2009 2010 2011 2012 2013
EBIT/Sales 0.322 0.352 0.414 0.482 0.415 0.391 0.321
EBT/EBIT 1 1 1 1 1 1 1
Net Income/EBT 0.66 0.70 0.69 0.70 0.70 0.72 0.72
Sales/Total Assets 0.96 0.98 0.62 0.71 0.73 0.71 0.58
Total Assets/Total Equity 1.07 1.06 1.06 1.04 1.04 1.09 1.09
0.000
0.200
0.400
0.600
0.800
1.000
1.200
GSTL

9. fundamental analysis of Gandhi Special Tubes
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Intrinsic Value Assumptions
Net Present Value based on DCF
 3 years average free cash flow Rs260414964
 Growth Rate For 1-5 years and 6-10 Years is 10% and 8% Respectively.
 Terminal Growth Rate is 0%.
 Discount Rate is 12%.
Based on above Criteria Intrinsic Value Per share is Rs 271.
Earning Power Value (EPV)
 After DCF, the second most reliable measure of a firm’s intrinsic value is the
value of its current earnings. This method is known as ‘Earning Power Value’
or EPV.
EPV = Adjusted Earnings x 1/R
 GSTL posted an EPS (earnings per share) of Rs 19.13 in FY13. If GSTL’s
profits were to stagnate and remain at Rs 19.13 per share going forward, and
applying the EPV formula here, I multiply Rs 19.13 with 1/9.3% (9.3% is the
approx. cost of capital for the company).
Pricing relative to 10 year average P/E ratio
 True value investors, as Graham has prescribed, won’t pay a price based on the
stock’s latest P/E or the company’s latest earnings. They will take a much
longer term view…as long as 10 years.
Last 3 Years Average EPS x Last 10 Years Average
 GSTL’s average P/E ratio for the past 10 years has been around 9.2 times, while its last 3
years’ average EPS has been Rs 15.68 per share. Based on the formula, GSTL’s intrinsic
value is coming to Rs 149 per share.
Rs 141
Rs 271
Rs 149

10. fundamental analysis of Gandhi Special Tubes
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Graham number
 Graham number is the formula Ben Graham used to calculate the maximum price one
should pay for a stock. As per this rule, the product of a stock’s price to earnings (P/E)
and price to book value (P/BV) should not be more than 22.5 i.e., P/E of 15 multiplied by
P/BV of 1.5.
Fair Value Price = Square Root of (22.5 x EPS x BVPS)
Earning Per share = 19.13
Book value Per share = 102.47
Applying this formula for GSTL, the stock’s intrinsic value comes to around Rs 201
per share.
Fair Value
We have calculated 4 different intrinsic values for GSTL using 4 different methods. So much
for the ‘target prices’
As you can see from the above calculations, the ‘target price’ isn’t such a holy number and
can differ based on the method used to calculate it.
Fair Value Range = 271+141+149+210/4
= 193
Assuming a margin of safety of around 20%, I would be comfortable buying GSTL’s stock
only at around Rs 144 or lower. This is around 25% lower than the stock’s current price.
Rs 210
Rs 193 to
Rs 144

11. fundamental analysis of Gandhi Special Tubes
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DISCLAIMER
Past performance is not indicative of future results. Neither my analysis nor my Report
guarantees any specific outcome or profit. You should be aware of the real risk of loss in
following any strategy or investment discussed on this Research Report. Strategies or
investments discussed may fluctuate in price or value. Investors may get back less than
invested. Investments or strategies mentioned on this Report or on the show may not
be suitable for you. This material does not take into account your particular investment
objectives, financial situation or needs and is not intended as recommendations
appropriate for you. You must make an independent decision regarding investments or
strategies mentioned on this Research Report. Before acting on information on this
Research Report, you should consider whether it is suitable for your particular
circumstances and strongly consider seeking advice from your own financial or
investment adviser.