Cenlub Industries Ltd. (CIL)

Transcription

1 23 November 2012 CMP: Rs Industry: Industrial Machinery BSE Group / Index: B Promoters Vijendra Kumar Mittal & his family Vijendra Kumar Gupta & his family Minihyd Hydraulics Pvt. Ltd. Year of incorporation 1977 Corporate office 35, DLF Industrial Estate - 1, Faridabad Haryana Company website Key Data (as on 23-Nov-12) BSE ISIN INE627F01011 Face Value 10.0 Mkt Cap (Rs. mn) Current P/E 5.2 Current P/BV week low-high day daily trading volume (nos) 2387 Equity capital (Rs. mn) 41.2 Net worth (Rs. mn) Company business Cenlub Industries Limited (CIL) is engaged in the manufacture of centralized lubrication systems for machinery, plant and equipment and vehicle chassis The Company was incorporated in 1977 as a proprietorship firm named Cenlub Engineers. The company has four manufacturing facilities two in Faridabad, one in Bengaluru and one in Rajkot. CIL primarily supplies lubrication systems to the machine tools sector and the power sector, with Bharat Heavy Electricals Ltd. (BHEL) being the major customer. Peer group analysis FY12, Rs in million Cenlub Industries Axtel Industries Permanent Magnets Total income EBIDTA EBIDTA margin 14.2% 10.8% 8.9% PAT (22.6) PAT margin 7.1% 5.2% (4.8%) EPS (2.6) Cash accruals (144.0) Debt/EBIDTA Debt/Equity ROANW 22.5% 14.2% neg. ROACE 26.7% 17.4% neg. P/E (4.1) P/BV Source: Moneycontrol, Company Write to us at: equityresearch@outlookindia.com Page 1 of 6

2 Price Performance (vs BSE small cap) 300.0% 250.0% 270.4% 200.0% 150.0% 100.0% 78.2% 50.0% 0.0% -50.0% -4.1% -30.7% 3 YR 5 YR BSE Small Cap Cenlub Industries Top public shareholders No. Name of the Shareholder Total Shares held (in mns.) Shares as % of Total No. of Shares 1 Kailashben Ashokkumar Patel Shyam Sunder Gupta Dr Sanjeev Arora Total Change in Shareholding Pattern (%) Shareholding Pattern Year Promoter DII FII Others Sep Jun Mar Mar Mar Mar Mar % Mar % Source: BSE Source: BSE Since 2010 the promoters have been progressively increasing their stake in the company through open market purchases within SEBI guidelines. From a total of 4.55% of shares of the company were allotted to the promoter VK Mittal on a preferential basis after approval from the shareholders of the company. 59% 41% Promoter DII FII Others Page 2 of 6

3 Established track record of operations, although scale of operations is small Established customer base, particularly in the machine tools industry Strong current order book provides revenue visibility. Established customer base, although customer concentration risks exist; working capital intensive nature of operations. Low profitability High competitive intensity in the industry due to fragmentation; exposure to demand risks related to the project-based nature of the business. Favourable long-term demand prospects from end-user sectors such as power and machine tools Key strengths The company has an established track record of operations, being in operations for about three decades; however, the scale of operations remains small. Most of the orders are low-value orders from small scale industries; therefore, average realisations remain low, although the company is taking up more complex orders in the recent past. With improvement in realisations and volumes, the revenues have witnessed favourable growth. The company has tried to diversify risks by supplying to various industries such as machine tools (constituting about 45-50% of the revenues), steel, sponge iron, cement, sugar, power, paper, textile & jute etc. The company has recently bagged a contract from the Association of State Road Transport Undertakings (ASRTU) for providing lubrication systems for vehicle chassis for state road transport undertakings The company has a current order book (about Rs. 140 million as of February 2012), providing revenue visibility in the near future. Key concerns The company faces high customer concentration risk on account of high exposure to Bharat Heavy Electricals Limited (BHEL), with ~40% of its revenues of FY12 were orders from BHEL. The balance customer base is diversified, although the value of orders per customer remains relatively small on account of high exposure to the machine tools industry. The company has low bargaining power with bigger customers such as BHEL on account of small scale of operations, while in the case of SMEs in the machine tools sector; the customers stretch the payments at times leading to high debtor levels. With the company focussing more on OEMs in the power sector, the customer concentration risk is expected to reduce and the average value of orders per customer may improve. The small scale of operations of the company; high competitive intensity in the centralised lubrication systems industry on account of fragmentation; exposure to risks related to the projectbased nature of the business, which may impact the order flow and revenues in case of any downcycle in the capital goods manufacturing industry; and the low bargaining power with customers impact the profitability of the company. Industry overview The Indian Machine Tools industry is a highly fragmented industry, with an estimated companies operating in it. While it witnessed good growth on account of a strong recovery in the manufacturing sector in , the current financial year has witnessed a slowdown in the manufacturing and capital goods sectors. Most of the domestic lubrication systems manufacturers are small players with limited scale of operations. The major customers are primarily from the capital goods industries, such as machinery manufacturers, original equipment manufacturers (OEMs) particularly from the power industry. The project-based nature of the business results in the company facing demand risks, with the number of orders declining in case of any slowdown in the capital goods/manufacturing industry. The customer base of the domestic players includes smaller players and players for whom after-sales service is a constraining factor; consequently, imports, with limited after-sales support, do not pose much of a threat to the customer base of the domestic industry. With domestic lubrication system players moving up the value chain by engaging in development of more complex systems, the growth prospects of the domestic industry are favourable. Government policy The long-term demand prospects of the machine tool industry are predicted to remain favourable with growth anticipated in customer sectors such as automobile manufacturing, power generation etc. As regards the power sector, the Planning Commission had set a target for installed capacity addition of 78.7 GW during the 11th plan ( ); however, it is expected that only about GW of power will actually be installed by the end of the 11th plan. Further, the Planning Commission has set an ambitious target of capacity addition of 100 GW for the 12 th plan period ( ); however, given the constraints facing the sector, whether the proposed capacity addition will be achieved remains to be seen. However, huge capacity additions are likely to aid growth for the supplier industries, including the lubrication industry. Page 3 of 6

4 Company fundamentals CIL procures components such as motors, pumps, valves, and designs the blue-print of the lubrication system and assembles the components. It also takes up turn-key projects related to plant lubrication for various sectors such as machine tools, power systems, steel, iron, sugar, etc. The growth of the company id directly linked to that of its end-user industries. The ability of the company to scale up revenues while maintaining profitability and improve the working capital cycle will be the key to its success over the next few years. As regards the capex plans of the company, the manufacturing units in Faridabad will be consolidated in H , for which the building is being constructed. The project cost is expected to be Rs. 50 million, which is being entirely funded through internal accruals. Key financial indicators Total income of the company for FY12 was at Rs 361 mn, 28% higher than FY11. EBIDTA also increased 36% to Rs 51.5 mn in FY12. EBIDTA margins improved from 13.3% to 14.2% in FY12. The company has witnessed good growth on account of increased orders from its main customer BHEL. Despite a 41% increase in interest costs at Rs 12 million, PAT was higher by 43% to Rs 25.5 mn. The debt of the company has witnessed an increase over the past few years, although debt primarily constitutes of working capital borrowings.. The working capital requirement is high on account of high debtor and inventory days. Since the customers of the company include small machine tool manufacturers, the payments get stretched at times leading to high debtor days. Further, the company has to maintain a stock of components such as motors, leading to high inventory levels. Quarterly results Particulars (Rs in mn) Apr 12 to Jun 12 Apr 11 to Jun 11 % Change1 Jan 12 to Mar 12 % Change2 Total income % (20.9%) Total expenditure(excl. depreciation) % 90.1 (19.6%) EBIDTA % 17.1 (27.5%) PBT % 14.6 (42.5%) PAT % 10.9 (47.7%) EPS % 2.7 (48.1%) 1 compared to corresponding quarter in the previous year 2 sequential comparisons Page 4 of 6

5 Ratios Segment-wise contribution to total revenue Key ratios 1% 1% EPS and DPS 6.2 Lubrication Equiipment Installation & Erection EPS DPS 99% 99% (outer ring shows FY12 data: total operating revenues were Rs mn) (inner ring shows FY11 data: total operating revenues were Rs mn) BV per share Profitability ratios Leverage ratios 30.0% 25.0% 20.0% 15.0% 12.6% 17.3% 20.0% 17.7% 22.5% 26.7% % RONW ROACE Debt/Equity Debt/EBIDTA Page 5 of 6

6 Financials P&L (Rs. mn) Balance Sheet (Rs. mn) Total income Share Capital EBIDTA Reserves & Surplus (incl. reval reserves) EBITDA Margin% 14.2% 13.3% 14.2% Net worth Depreciation Borrowings EBIT Current liabilities and provisions Interest Total liabilities PBT (post extraordinary items) Net fixed assets Tax loans and advances (Long and short term) PAT (excl. minority interest) Investments PAT Margin % 6.5% 6.3% 7.1% Current assets Dividend (including divi tax) Other non-current assets 8.1 (0.2) 0.2 Total assets Valuation ratios Cash Flow (Rs.mn) P/E PBT P/BV CF from Operations 10.1 (11.2) 44.3 CF from Investments (2.6) (2.9) (19.3) CF from Financing (21.9) Inc/(dec) in Cash 16.2 (10.6) 3.0 Closing Balance Disclaimer The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. Our company shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for any investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation which may affect their investment in the securities of companies referred to in this document (including the merits and risks involved). The discussions or views expressed may not be suitable for all investors. This information is strictly confidential and is being furnished to you solely for your information. Page 6 of 6