PATELS AIRTEMP LIMITED

PATELS AIRTEMP 

BSE CODE 517417 (scrip traded only on bse) 

Cmp 96-97

Patels Airtemp manufactures critical products like heat exchangers, pressure vessels, industrial fans and blowers, and other products that find use in sectors like oil and gas, refineries, power, fertilisers, chemicals, cement and textiles. The company is also into HVAC business ( where the company undertakes turnkey projects and manufactures HVAC equipment, which is also expected to benefit from the retail boom). 

 
FINANCIAL DETAILS 

Current market cap  around 50 crores. Equity 5.07 crores Debt as on March 10 was around 10 crores.

Year	04	05	06	07	08	09	10	Q1 fy 11
Sales	16.6	31	34	47	62	68.4	72	16.6
NP	0.5	1.12	1.38	2.54	5.22	7.1	8.7	1.8

Order book of the company as on end of June qtr 2011  was around 68 crores.

ROCE HAS BEEN CONSISTENTLY ABOVE 40 SINCE MANY YEARS.  MANAGEMENT KNOWS HOW TO GET THE MAXIMUM OUT OF CAPITAL.  

THERE HAS BEEN NO EQUITY DILUTION SINCE MANY YEARS AND DEBT HAS BEEN WITHIN LIMITS AND FOR MARCH 10 DEBT WAS AROUND 10 CRORES.

FUTURE PROSPECTS: 

THE COMPANY IS BETTING ON THE EXPANSION PROGRAMME OF IFFCO TO OBTAIN NEW ORDERS.

SETTING UP OF ABOUT 300 NEW CNG STATIONS IN GUJARAT ALSO WILL PROVIDE NEW ORDERS

 
THE COMPANY HAS BEEN SPENDING CONSISTENTLY ON ENHANCING CAPACITY AND IMPORTING NEW MACHINERY. 

COMPANY IS OPTIMISTIC ABOUT THE NUCLEAR SECTOR ORDERS.

PROMOTER HOLDING IS 37% PROMOTERS ARE CONSISTENTLY  PURCHASING FROM MARKET THROUGH THEIR ARM THERMFLOW ENGINEERS. 

POSITIVES: 

1.CONSISTENT GROWTH 
2.VERY LOW DEBT 
3.CONSISTENT DIVIDEND PAYMENT SINCE 4-5 YEAR
5.VERY GOOD GROWTH PROSPECTS AS THE CAPEX CYCLE IS BACK ON TRACK 
6.CHEAP VALUATIONS AND CONSISTENTLY GOOD RETURN RATIOS 

NEGATIVES: 

COMPANY IS A SMALL PLAYER AND HENCE RISKS ASSOCIATED WITH SMALL AND MICRO CAPS 

SINCE PAST TWO YEARS, THE GROWTH HAS SLOWED DOWN AS COMPARED TO EARLIER SPECTACULAR GROWTH BUT STILL THE COMPANY EXPECTS TO GROW AT 20% CAGR WHILE MAINTAINING SIMILAR MARGINS.

POOR LIQUIDITY 

TECHNICALS

The stock is in a sideways consolidation between 90-100 since long time with occasional spikes to 125 levels. Currently it is stuck in a range of around 90-105 and looks good for accumulation.

LINK TO EARLIER POST ON THEEQUITYDESK.COM WHEN I POSTED THE STOCK IN JULY 09

http://www.theequitydesk.com/forum/forum_posts.asp?TID=2242

SUNIL HITECH LIMITED

SUNIL HITECH LIMITED

Sunil Hitech Engg (SHEL) is a well established player in the segments of fabrication, erection, and commissioning of Boilers, Turbo Generator plants, Bunkers, Electrostatic Precipitators, and Balance of Plant (BOP)  in the power plant.

The company which initially began as a contractor has now transformed itself into a Balance of Plants (BOP) player.  It has enhanced its bidding capacity from 100 MW to 250 MW power plants.

Peer companies include BGR Energy, Petron Engg, and Artson Engg.

Order Book for the company stands at 1875 crores as at August 2010, which gives visibility to next 1.5 to 2 years and according to the management, the company has bid for a further orders worth 6000 crores and hence a healthy order pipeline exists.

FINANCIALS:

At cmp of around 182, the market cap of the company stands at around 224 crores.  Net debt as at March 2010 was 210 crores. Book value is around 161.

Equity is 12.28 crores and Promoter holding is around 53%, with no pledging.

Year	08	09	10	Q1 fy 11	FY 11E	FY 12 E
Sales	317	612	722	135	900	1155
NP	21	10	23.46	5.6	39	49
Eps	20	8.4	19.11	4.6	31.7	40.3

Estimates for FY 11E and FY 12E are taken from a report of sharekhan after Q1 FY 11.

REASONS FOR HAMMERING OF STOCK

Results for Q4 FY 10 were affected by a one time provision of around 17 crores for income tax liability.  The company offices were raided by the IT authorities and as per calculations for the last six years assessment, the above provision has been made.  The IT raid and cash recovered from the promoters caused a lot of headlines in the newspapers.  This could be a negative for the purists of investment because integrity and ethics of promoters could be questioned. 

Results for Q1 FY 11 were affected due to delay in execution of projects due to delay in site mobilization and engineering drawing.  Due to this, the management has reduced its guidance for growth for FY 11 from 25% y-o-y to 10%.

POSITIVES:

The company has a healthy order book giving visibility to next 1.5 to 2 years and some more orders in pipeline.

Cheap valuations for the company against EPS estimates of around 31 for FY 11.

The debt equity of the company is within reasonable range of less than 1 as comared to other players.

NEGATIVES:

A big negative is the market perception about the promoters due to the cash recovered during IT raid.

COMPARISION WITH PEERS

COMPANY	SUNIL	BGR ENERGY	PETRON	ARTSON
MARKET CAP	224	6047	312	313
SALES FY10	722	5048	307	215
PBIDT	80	369	51	9.87
NP	20	201	24	1.68
P/E	10.82	30	13
p/bv	1.29	8	3.5

Artson is a turnaround company and hence ratios and comparisions do not mean much.

Looking at the above facts, it seems the stock has corrected out of proportion to the negative news and poor results from a high of around 268 in March 10 to 182 levels currently.

Since India is a power deficient economy, the players operating in this space are going to have healthy order flows for the foreseeable future, and once the company gets its act together, there could be good upsides in this stock.

TECHNICALS:

Since march 2010, the stock has been in a downtrend in the shape of a falling wedge as shown in the chart below. Recently, there has been positive divergence in MACD indicator, where the stock price has formed lower lows whereas the indicator has formed higher lows. A breakout from the falling wedge pattern with good volumes could lead to good upsides in this stock.

GLOBUS SPIRITS

GLOBUS SPIRITS –

Globus is a company which has diverse presence in the sector right from manufacturing, marketing and sale of country liquor, branded Indian Made Foregin Liquor, industrial alcohols and taking up contract bottling to cater to renowned Indian branded IMFL players. This strategy places the company in an envious position to take advantage of the full spectrum of the market and maximise earnings in a variable market scenario 

PLANTS:  Globus Spirits  has two modern distilleries, one at Behror, Rajasthan and another at Samalkha, Haryana. Both are state of the art plants which can produce alcohol from grains or molasses, which gives the company flexibility in the use of raw materials depending upon their prices. Currently the company only uses grains as raw materials.

EXPANSION:

The company’s two plants are operating at full capacity currently and hence it has embarked upon expansion plan to raise its capacity (of bulk alchohol)  from current levels of around 29.6 BL to 70 BL. (Earlier the plan was to hike the capacity to around 48.8 BL but the company’s engineers with some clever engineering have managed to plan the capacity hike to 70 BL with minimal  extra cost.)

The expanded capacity is slated to start contributing to the company’s revenues from the end of Q2 FY 11 and so full benefits will be reflected in the second half results.

FUNDING of the expansion is through funds raised through IPO—around 65 crores, loans of around 12 crores and internal accruals of around 13 crores which amounts to a total of 90 crores. This is not going to put too much pressure on the healthy balance sheet the company has.

LAUNCH OF ITS OWN BRAND OF WHISKY – County Club Whisky is the brand the company has launched in Haryana, Punjab, HP, Chandigarh, Rajasthan and plans are afoot to launch it on a national level and strengthen the brand through advertisements and other promotional activities. The company has met with a good initial response and expects to achieve sales of around 10 lac cases of the product in FY 11. This brand has been launched in competition with the top brands of United Spirits and Radico with equivalent pricing.

Currently Globus has some brands like Samurai Whisky, GR8 Times-Whisky and Rum, Academy & delum rum and brandy, 20-20 Whisky, Hannibal rum, White lace Gin.

FINANCIALS

At the current market price of around 176, market cap is around 350 crores. Promoters own about 60% stake with no pledging.

Book Value is around 82,  debt is around 32 crores,  cash balance 21 crores,

YEAR	05	06	07	08	09	10	Q1FY11
SALES	68	86	116	235	281	384	102
NP	0.24	5.24	8.66	12.64	12.93	28.92	6.29
ROE					24	26

POSITIVES:

Company has shown good growth till now and expected to continue it ahead due to benefits of expanded capacities kicking in in second half of FY 11.

Inspite of expansion, there is no stretching of balance sheet.

Promoters are in this business since almost fifty years.

Success of its own brands could lead to higher margins.

Ethanol mixing with petrol if allowed by the govt could be a huge plus for the company.

NEGATIVES:

Raw material price volatility could impact earnings

Volatility in prices of spirits could affect profitability

CONCLUSION:

Looking at the above synopsis, Globus Spirits looks like a company at an inflection point of its growth story and likely to show strong growth over next few years.

The stock according to me has the makings of a good portfolio bet for the medium to long term.

Recently the stock has run up and is in an acceleration channel as shown in the charts.

Globus looks like a good stock for accumulation on declines as a portfolio bet.

Disc: I have made an initial entry at current price. 

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