Stock Review of Techno Funda Research Product Portfolio Track - Buy Portfolio Track Information Data BSE Code Grade FV (Rs.) CMP 52Weeks H/L Kirloskar Pneumatic Co-Ltd 505283 D 10 Rs.531.2 Rs. 563/348 Target Price Reuters Code Bloomberg Code NSE Symbol STOCK DATA Rs.679 KIRP.BO KKPC IN KGKHOSLA Mkt.Cap. Rs. 6826.7 mn Shares Outstanding(*) 12.8 mn Avg. Daily Volume (6m) 10,379 Shares Price Performance (%) 1M 3M 6M 5 15 39 200 Days EMA Rs.451 * On fully diluted equity Shares SHARE HOLDING (%) Promoters 55.9 FII 0.4 FI / MF 13.2 Body Corporates 9.1 Public & Others 21.5 Kirloskar Pneumatic is a Kirloskar group company, manufacturing air, gas and refrigeration compressors, compressor systems and gear boxes. It derives 85% of its revenue from the Compressors/compressor system segment and 15% from the transmission products. Strong Order Book Position: KPCL has an order book position of Rs.660 Crs as of June 2010, which is 1.4x its FY10 revenue. This order book is executable over a period of 14-16months thus providing healthy revenue growth visibility. Industry Leader: The company is an industry leader in the hi-tech refrigeration systems having a market share of 70% in ammonia based refrigeration systems. It has ~50% market share in the CNG gas compression systems supplying to industry leaders like IGL, MGL etc. The company s hi-tech screw compressors have a 90% market share in the Indian Navy for compression systems required for air conditioning. In the Railways the company has a 75-80% market share for traction gears in locomotives. CNG Gas and Refrigeration Compressing Systems to drive growth: Business for Gas Compression System for CNG Packages is slated for growth as Government has planned on expanding the City Gas Distribution projects to over 300 cities in India. Currently there are just 700 CNG stations in India which is much lower than more than 2600 CNG stations of Pakistan. Thus KPCL which is an eminent player in the CNG gas Compression systems is likely to benefit from this growth. With the rapid increase in retail malls and departmental stores, the Cold storage and refrigeration segment too provides good growth opportunities. Hi-tech Products: Kirloskar Pneumatic is an engineering company providing highly customized and hitechnology products for its customers which results into lower competition. The company distinguishes itself as a customized system supplier rather than a product manufacturer. It is now focusing more towards hi-tech products which will help the company increase its margins. KPCL is the only company in India manufacturing 1MW gear boxes for wind mills in India, and the only supplier to NEPC and Pioneer. Y/E Mar. REVENUE RPAT AEPS AEPS ROE ROCE P/E P/BV (Rs.mn) (Rs.mn) (Rs.) (% Chg.) (%) (%) (x) (x) FY10 4532.8 475.7 37.0 16.5 32.6 26.9 14.4 4.2 FY11E 5121.7 489.0 38.1 2.8 27.5 24.0 14.0 3.5 FY12E 6077.8 581.6 45.3 18.9 26.9 24.2 11.7 2.9 Ishpreet Batra ishpreet.batra@sushilfinance.com +91 22 4093 5091 This report based on Techno Funda Research and our View / Target Price has been derived accordingly. Please refer to the disclaimer on the last page. 1
Kirloskar Pneumatic Company Ltd Compressors/ Compressing Systems Transmission Products Air Compressors Refrigeration Gas Compressors Source: Company Company Profile The Company has two major business segments viz. Compressors/Compressing Systems and Transmission Products. Compressors/Compressing Systems: The Compressing Systems are set-up at Hadapsar and Saswad, both at Pune, manufacturing a wide variety of compressors, and also undertaking design, packaging of conventional and high-tech refrigeration systems. This segment serves various industries such as Power Generation, Air Separation, Textile, Iron and Steel, Oil & Gas, Cement, Sugar, Defence, Railways, Construction & Mining, Fertilizers, Pharmaceuticals, Dairy, Brewery, Fish & Meat Processing, Cold Storage, Ice Plant etc. The plant at Saswad also packages Gas Compression systems for CNG Stations, Refineries and Petrochemical Industry. Transmission Products: The Transmission Products are manufactured at Hadapsar, Pune for Rail Traction Gears, and gearboxes for Wind Turbine, Navy, commercial ships and industrial applications. It is also a supplier of locomotive gears to General Motors and General Electric, being in the approved list of the aforesaid companies. Net debt free with higher return ratios: KPCL is a net debt free company with higher return ratios. The company s ROE as of FY10 is 32.6% while ROCE is 26.9%. The company s profitability margins have seen a steady rise due to conscious management efforts. Its operating profit margin has increased from 9.7% in FY07 to 14.9% of FY10. Rise in margins was mainly because of strict cost control measures and sale of hi-tech products which have higher margins. 2
PROFIT & LOSS (Consolidated) (Rs.mn) BALANCE SHEET (Consolidated) (Rs.mn) Y/E March. FY09 FY10 FY11E FY12E Net Sales 5184.8 4532.8 5121.7 6077.8 Raw material Consumption 3117.7 2568.1 2970.6 3555.5 Manufacturing Expenses 333.2 268.3 307.3 364.7 Staff Cost 510.4 531.9 589.0 668.6 Total Expenditure 4554.8 3858.1 4420.1 5245.1 PBIDT 630.0 674.7 701.7 832.7 Interest 23.7 18.6 18.4 20.1 Depreciation 52.8 73.5 81.9 91.2 Other Income 72.5 99.7 97.3 109.4 PBT incl OI 626.1 682.3 698.6 830.8 Tax 217.6 206.6 209.6 249.3 RPAT 408.5 475.7 489.0 581.6 As on 31 st March. FY09 FY10 FY11E FY12E Share Capital 128.4 128.4 128.4 128.4 Reserves & Surplus 1180.9 1479.6 1818.4 2249.7 Net Worth 1309.4 1608.1 1946.8 2378.1 Secured Loans 372.7 299.0 299.0 299.0 Unsecured Loans 4.2 1.5 1.5 1.5 Total Loan funds 376.9 300.5 300.5 300.5 Deferred Tax 14.6 20.6 0.0 0.0 Capital Employed 1701.0 1929.2 2247.3 2678.7 Net Block 479.0 724.1 842.1 951.0 Cap. WIP 96.9 39.8 46.9 31.0 Investments 207.2 272.2 272.2 272.2 Sundry Debtors 1338.5 1395.7 1473.4 1665.1 Cash & Bank Bal 308.8 259.8 298.4 587.0 Loans & Advances 511.9 476.5 491.1 499.5 Inventory 1024.2 741.6 935.9 1071.5 Curr Liab & Prov 2298.3 2009.0 2141.3 2427.4 Net Current Assets 885.1 864.6 1057.5 1395.9 Total Assets 1701.0 1929.2 2247.3 2678.7 Source: Company, Sushil Finance Research Estimates 3
FINANCIAL RATIOS (Consolidated) Y/E March FY09 FY10 FY11E FY12E Growth (%) Net Sales 28.7-12.6 13.0 18.7 EBITDA 79.1 7.1 4.0 18.7 Adjusted Net Profit 36.9 16.5 2.8 18.9 Profitability (%) EBIDTA Margin (%) 12.2 14.9 13.7 13.7 Net Profit Margin (%) 7.9 10.5 9.5 9.6 ROCE (%) 28.4 26.9 24.0 24.2 ROE (%) 34.7 32.6 27.5 26.9 Per Share Data (Rs.) EPS (Rs.) 31.8 37.0 38.1 45.3 CEPS (Rs.) 35.8 43.2 44.5 52.4 BVPS (Rs) 101.9 125.2 151.6 185.2 Valuation PER (x) 16.7 14.4 14.0 11.7 PEG (x) - 0.9 5.0 0.6 P/BV (x) 5.2 4.2 3.5 2.9 EV/EBITDA (x) 10.9 10.2 9.7 7.9 EV/Net Sales (x) 1.3 1.5 1.3 1.1 Turnover Debtor Days 95.1 110.1 105.0 100.0 Creditor Days 111.8 126.0 115.0 110.0 Gearing Ratio D/E 0.3 0.2 0.2 0.1 Source: Company, Sushil Finance Research Estimates 4
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