National Fittings Limited Date: 13 th January, 2016 Stock Performance Details Shareholding Details September 2015 Current Price : ` 100.5^ Face Value : ` 10 per share 52 wk High / Low : ` 107.9 / 57.0 Total Traded Volume : 26,850 shares^ Market Cap : ` 83.6 crore^ Sector : Iron & Steel Products EPS (H1 FY16) : ` 3.51 per share Equity Share Capital : ` 8.3 crore P/E (TTM) : 14.78 (x)^ P/BV (TTM) : 5.50 (x)^ Financial Year End : 1 st April 31 st March BSE Scrip Name : NATFIT BSE Scrip Code : 531289 ^ as on 12 th January, 2016 Particulars Shareholding Nos. (%) Promoter & Promoter Group Holding 54,53,482 65.54 Total Institutional Holdings (FIIs & DIIs) 600 0.01 Public Holdings 28,65,918 34.45 Total 83,20,000 100.00 Background National Fitttings Limited (NFL), an export oriented company is the manufacturer of Quality Piping components including complete range of fittings and ball valves in stainless and carbon steels and grooved couplings and fittings from Spheroidal Graphite (SG) Iron Castings.. NFL manufactures products with recognized International standards and most of the products are approved by various international testing agencies for specific application. It operates as an ISO 9001 Certified Investment Casting Foundry, utilizing lost wax process and an exclusive supply source for its entire SG Iron Castings requirement. NFL has developed a new line of products for joining pipes of 2 and below. The new product line will contribute up to 20% of sales of the Company in the future years. Sourcing of the components required by NFL is not easy. Hence, NFL has made arrangements with its holding company and a related company for the dedicated supply of components at competitive prices. An Initiative of the BSE Investors Protection Fund1
Financial Snapshot Particulars Standalone (` Million) Income Statement H1 FY16 H1 FY15 Income from Operations 237.1 228.6 Y-o-Y Growth (%) 3.7 47.5 EBITDA 48.5 47.5 Y-o-Y Growth (%) 2.1 100.4 EBITDA Margin (%) 20.5 20.8 Net Profit 29.2 27.6 Y-o-Y Growth (%) 5.8 124.4 NPM (%) 12.3 12.1 Balance Sheet Fixed Assets 51.3 56.1 Cash and Bank Balances 78.5 90.1 Inventories 54.1 54.3 Net Working Capital 134.9 118.5 Net Worth 181.2 167.9 Balance Sheet Ratios ROCE (%) 29.1 30.3 RONW (%) 16.1 16.4 Source: Capitaline From the Research Desk of LKW s Gurukshetra On a Standalone basis, Revenue from Operations stood at Rs. 237.1 million in H1 FY16 which is an increase from Rs. 228.6 million reported in H1 FY15. Sales and margins improved due to increase in the purchase of castings from its outside sources. In spite of price reduction due to severe competition from China, the Company has been able to reduce production costs and thus improve margins. Company expects to improve sales and its margin due to the improved power situation and increase in the production. Material Cost stood at Rs. 136.5 million in H1 FY16, thus increasing by 10.1% on a y- o-y basis. Employee Benefit Expenses stood at Rs. 13.3 million in H1 FY16 as compared to Rs. 12.3 million in H1 FY15. Other Expenses comprising expenses for Freight and Forwarding, Bad Trade and other receivables, loans and advances written off stood at Rs. 45 million in H1 FY16 as compared to Rs. 43.6 million in H1 FY15. The Company reported an EBIDTA of Rs. 48.5 million in H1 FY16 as compared to Rs. 47.5 million in H1 FY15. EBIDTA Margin stood at 20.5% in H1 FY15 versus 20.8% in H1 FY15. Depreciation and Interest Cost stood at Rs. 6 million and Rs. 4 million respectively in H1 FY16. In line with the performance at the EBIDTA level, PAT for H1 FY6 stood at Rs. 29.2 million as compared to Rs. 27.6 million in H1 FY15. PAT Margin stood at 12.3% in H1 FY16 versus 12.1% in H1 FY15. An Initiative of the BSE Investors Protection Fund2
Inventories decreased to Rs. 54.1 million in H1 FY16 from Rs. 54.3 million reported in H1 FY15. Cash and Cash Equivalents of the Company decreased by 14.8% y-o-y to Rs. 78.5 million in H1 FY16 from Rs. 90.1 million in H1 FY15. NFL informed the Exchange on 29 th May, 2015 that the Board of Directors of the Company at its meeting held on 29 th May, 2015, recommended for the sub-division of Equity Shares from Rs. 10 each to Re. 1 each subject to the approval of shareholders in the ensuing Annual General Meeting. Performance on the Bourses % 180 150 120 90 60 30 0 Stock Performance National Fittings as on 1st January, 2016 BSE Small Cap Peer Comparison The following table gives a snapshot view of the Company s performance vis-à-vis its closest peers for H1 FY16. (` In millions) Particulars National Fittings KIC Metaliks Jayaswal Neco Industries Income from Operations 237.1 1,277.4 14,196.5 EBIDTA 48.5 73.1 1,337.1 Net Profit 29.2 2.9 101.1 EBIDTA Margins (%) 20.5 5.7 9.4 PAT Margins (%) 12.3 0.2 0.7 Book Value Per Share 18.3 62.4 34.7 P/E (x) 11.77^ 0.00^ 10.90^ P/BV (x) 4.38^ 1.92^ 0.22^ RONW (%) 16.1 0.3 4.5 Source: Capitaline Financials on Standalone Basis; ^ On a Standalone Basis as on September, 2015 (TTM Basis) An Initiative of the BSE Investors Protection Fund3
About the Industry India is the third-largest crude steel producer in the world. The growth in the Indian steel sector is driven by domestic availability of raw materials such as iron ore and cost-effective labour. The steel sector has been a major contributor to India s manufacturing output. In 2015, India produced 91.5 million tonnes (MT) of finished steel. Total finished steel production in the country increased at a CAGR of 7.5% over FY011 15. Driven by rising infrastructure development and growing demand for automotives, steel consumption is expected to reach 104 MT by 2017. The steel sector in India contributes nearly 2% of the country s gross domestic product (GDP) and employs over 600,000 people. The per capita consumption of total finished steel in the country has risen from 51 Kg in 2009-10 to about 59 Kg in 2014-15. India's steel consumption for FY 2015-16 is estimated to increase by 7%, higher than 2% growth last year, due to improving economic activity. India s steel production is expected to increase from 100 MTPA to 112.5 MTPA by FY16 and 300 MTPA by 2025. The Government of India has allowed 100% Foreign Direct Investment (FDI) in the steel sector under the automatic route. Nearly 301 MoUs have been signed with various states for planned capacity of about 486.7 MT. A new scheme, The scheme for the promotion of R&D in the iron and steel sector, has been approved with budgetary provision of US$ 24.6 million to initiate and implement the provisions of the scheme as per the 11th Five-Year Plan which has continued in the 12 th Five Year Plan. The development of technology for Cold-Rolled Grain Oriented (CRGO) steel sheets and other value-added products is also included under the policy purview and is allocated US$ 6.7 million. According to the data released by Department of Industrial Policy and Promotion (DIPP), the Indian metallurgical industries attracted Foreign Direct Investments (FDI) to the tune of US$ 8.7 billion, respectively, in the period April 2000 May 2015. Management Outlook The Government of India is aiming to scale up steel production in the country to 300 MT by 2025 from 81 MT in 2013-14. The Ministry of Steel announced investment in modernisation and expansion of steel plants of Steel Authority of India Limited (SAIL) and Rashtriya Ispat Nigam Limited (RINL) in various states to enhance the crude steel production capacity in the current phase from 12.8 MTPA to 21.4 MTPA and from 3.0 MTPA to 6.3 MTPA respectively. The Government has also planned Special Purpose Vehicles (SPVs) with four iron ore rich states i.e., Karnataka, Jharkhand, Orissa, and Chhattisgarh to set up plants having capacity between 3 to 6 MTPA. A Project Monitoring Group (PMG) has been constituted under the Cabinet Secretariat to fast track various clearances/resolution of issues related to investments of Rs. 1,000 crore (US$ 152 million) or more. To increase domestic value addition and improve iron ore availability for domestic steel industry, duty on export of iron ore has been increased to 30%. Due to slowing Chinese economy and expanded manufacturing capacities, most Chinese Companies involved in similar product lines are entering the export markets including India and offering low prices to continue to operate its business. However, with the establishment of dedicated facilities through associate companies, NFL expects the production cost to be lower in the coming months and stay competitive. Also, it hopes that the Make in India policy of the Government will translate into reduction in cost of inputs, service and infrastructure costs related to manufacturing industries. NFL expects the power costs to increase in the coming years to sustain the state owned electricity departments. As a result, being a power intensive component manufacturing set up, the cost of production might increase and it may not be possible to pass the cost increase to the buyers. Thus, the Company will take steps to install renewable energy generation like wind mills or solar to offset the power cost increase. Huge scope for growth is offered by India s comparatively low per capita steel consumption and the expected rise in consumption due to increased infrastructure construction and the thriving automobile and railways sectors. An Initiative of the BSE Investors Protection Fund4
Financial Graphs 240 Net Income from Operations ` in Million 230 228.6 237.1 220 H1 FY15 H1 FY16 EBIDTA & EBIDTA Margins 50 21 ` in Million 48 20.8 20.5 % 46 47.5 48.5 H1 FY15 H1 FY16 20 EBIDTA EBIDTA Margins 30 PAT & PAT Margins 13 ` in Million 28 27.6 12.1 29.2 12.3 % 26 H1 FY15 H1 FY16 12 PAT PAT Margins An Initiative of the BSE Investors Protection Fund5
Disclaimer All information contained in the document has been obtained by LKW s Gurukshetra from sources believed to be accurate and reliable. Although reasonable care has been taken to ensure that the information herein is true, such information is provided as is without any warranty of any kind, and LKW s Gurukshetra in particular makes no representation or warranty express or implied, as to the accuracy, timeliness or completeness of any such information. All information contained herein must be construed solely as statements based on available data, and LKW s Gurukshetra shall not be liable for any losses incurred by users from any use of this document or its contents in any manner. Opinions expressed in this document are not the opinions of our company and should not be construed as any indication of our recommendation to buy, sell or invest in the company under coverage. Disclosure Each member of the team involved in the preparation of this report, hereby affirms that there exists no conflict of interest. The report has been sponsored and published as part of Initiative of BSE s Investors Protection Fund About Us LOTUS KNOWLWEALTH (LKW) commenced business in 1991 and is currently engaged in providing CAPITAL MARKET RESEARCH, INVESTMENT ADVISORY and STRATEGY services. GURUKSHETRA is the Research and Training arm of LKW. LKW Investment Advisers is the SEBI registered Investment Advisory arm of LKW. 5 Contact Us LOTUS KNOWLWEALTH Pvt. Ltd. Regd. Office: B Wing, 505-506, Fairlink Centre, Off Andheri Link Road, Andheri (W), Mumbai 400 053. Email: enquiry@lotusknowlwealth.com Tel: 022-4010 5482 4010 5483 Website: www.lkwindia.com An Initiative of the BSE Investors Protection Fund6