GUJARAT APOLLO INDUSTRIES LTD

GUJARAT APOLLO EQUIPMENTS LTD  CMP 170 market cap 280 crores.

The company is a leading player in different products used in road construction and has been in this field for over four decades.  The products manufactured by the company and its subsidiaries can be classified into two main categories:

First, Mobile construction machinery which includes paver finishers of all types and sizes and bitumen pressure distributors. These are high margin products on which the company has increased its focus.

Second type is industrial plant such as batch mix plants, drum mix plants, wet mix plants and crushing and screening plants. 

During FY 10 the company restructured its operations wherein manufacturing of all products under industrial plants are consolidated at Guj Apollo Inds and manufacturing of mobile construction machinery is now being done by Apollo Earthmovers Ltd and its subsididary Apollo Inds Products.

The company has more than 30% market share in most of the products it manufactures

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Demand for the company’s products is likely to remain robust due to Persistent spending of various state govts on maintenance of existing roads and NHAI notifying contractors for having mandatory ownership of construction equipment.

The company has diversified product portfolio dealing with road construction segment. And since past few years the company is focussing more on mobile equipment group which offers higher margins.

Company has presence all around India by having branches which stock and sell spare parts and provide services. Exports continue to be the focus area for the company and during FY 11, the company is targeting markets in South Africa, New Zealand, and South America.

FINANCIALS:

The equity is 17 crores with 1.7 crores of Rs 10 each. Promoter holding is around 48% with FII holding around 3% and DII holding at around 8% as on Sep 10.  Promoter holding has reduced by around 1.5% due to selling of shares by distant cousins of the promoters during past 1 year.

DEBT has been low over the years with debt as at Sept 10 being at 38 crores.  ROE has been consistently above 20% since past six years.

Last six  years results

Year	05	06	07	08	09	10	HYsep10
Sales	68	113	156	187	181	214	111
NP	5.4	10.5	18	25.8	21.6	27	11.8

QUARTERLY RESULTS AND PROJECTIONS:

Coming to the stock performance, the stock price has corrected from a high of around  246 in Sep 2010 to a low of 162 in Dec 2010, mainly due to poor Sep quarter numbers.  These numbers were affected due to extended monsoon due to which the user companies did not place orders for the products and contribution from the lower margin products was higher leading to margin pressure as well.   But the pent up demand should give rise to good  Q3 and Q4 numbers. According to various estimates by brokerages, the company is likely to report sales of around 285 crores and net profit of around 34 crores, which yields EPS for FY 11 of around 20. For FY 12 company is projected to do eps of around 26-27 and current correction seems to offer a good entry point into a good company with bright future prospects.

POSITIVES:

1.       Company with good growth  available at reasonable valuation due to a poor quarter.

2.       Low debt

3.       Good balance sheet and return ratios

4.       Demand likely to be good due to govt focus on road development

5.       Company having good market share in the products it manufactures

NEGATIVES:

1.       Fortunes of the company largely depend upon govt spending on road projects

2.       Competition from foreign players is likely to intensify in view of high govt spending on road projects

3.       Sharp increase in raw material prices

4.       Competition from un organised sector

5.       Poor acceptance of new product like Crushers and Compacters on which the company is focussing.