Continues to remain hot
Highly diversified user base and expected continued growth at minimal capex
| Buy | International Combustion (India) |
| BSE Code | 505737 |
| NSE Code | Not listed |
| Bloomberg | ICMB@IN |
| Reuter | |
| 52-week High/Low | Rs 914 / Rs 245 |
| Current Price | Rs 421 (as on 30th April 2008) |
Material Handling equipment industry is one of the few segments of the engineering industry which has done exceptionally well and continues to have good growth potential. While Elecon Engineering and TRF are larger players, International Combustion and Hercules Hoists are smaller players.
International Combustion (India) (ICIL) manufactures heavy engineering equipment, Geared Motors and Gear Boxes, Vibrating Screens and Feeders, Bulk Material Handling Equipment, Rubber/Polyurethane Screen Decks and Liners, Raymond Grinding Mills, Air Classifiers and Flash Drying systems through its two business divisions, the heavy engineering division (HED) and the gear motors and gear boxes division (GMGBD). It serves all the major core industries with a specialised range of products.
Several tie-ups, fully equipped manufacturing facilities and strong marketing & services
It has tie ups with Danfoss Bauer GmbH, Germany (for Helical Geared Motors, Helical Gear Boxes, Electric Motors), Mogensen GmbH, Germany, (for Multi deck Sizers, Bar Sizers and Vibro Bar Sizers, Flip Flop Screens, Sizer 2000), IMS Engineering, South Africa (for Omni Screens), Raymond Operations Alstom Power, U.S.A. (forRAYMOND Roller Mills & Pulverisers, Microfine Grinding Mills, Mechanical Air Separators, Flash Drying Systems) Gummi Kuper GmbH., Germany, (for Rubber and Polyurethane Screen Decks and Liners) and Tredomen Eng. Ltd., U.K. (NCB) (for Mining Haulages )
It has fully equipped manufacturing facilities at Calcutta, Nagpur and Aurangabad, which ensures total control over production and product quality.
Its strong marketing and service organisation spread over the country assures quick and direct contact with customers during all phases - consultation, contractual negotiation, followed by execution, and after sales service.
Expanding its product portfolio
In order to maintain its growth momentum the company plans to expand its product portfolio by launching new products. It has entered into a technology transfer agreement with Ecutec, Spain to manufacture and sell microfine classifiers in India and its neighbouring countries. This product shall complement the HED's existing product range. Microfine classifiers are used in creating super fine/ultra fine granules of materials (used in paint, chemicals etc) and their usage is expected to rise in India.
Profits on fast track
For the nine-month ended Dec 2007, net sales grew 19% to Rs 66.18 crore. An expansion of 330 bps in OPM to 21.1% saw operating profit jump 41% to Rs 13.94 crore. Other income increased by 60% to Rs 1.17 crore. As interest cost was up by 57% and depreciation also was high by 16%, PBT grew by 48% only to Rs 12.55 crore. After considering for a taxation of Rs 4.31 crore, PAT grew 50% to Rs 8.24 crore.
Both the business segment registered impressive growth
Broadly, the total sales of the company can be classified as - Mineral & Material Processing & Handling equipments (MMPHE)-80% and Gear Motors and Gear Boxes-20%. A further classification of MMPHE would lead to various industry break up as Sugar-25%, Steel-35%, Gears and gear boxes-20% and others constituting minerals, food processing industry, cement, thermal power, grinding mills (Raymond mills), plastics-20%.
For the nine-month period ended Dec'07, sales of MMPHE division increased 17% to Rs 52.26 crore and the PBIT rose by 27% to Rs 17.67 crore. This division accounted for 78% of the total sales and 94% of total PBIT for the period under review. Overall the PBIT margins for MMPHE division are consistently above 30%. The company is very confident of maintaining the margin.
For the nine-month period ended Dec'07, Geared Motor & Gear Box division's net sales increased by 28% to Rs 14.39 crore contributing 22% of the sales whereas the segment PBIT posted a degrowth of 3% at Rs 1.18 crore. The segment contributed 6% of the company's PBIT for the nine-month period ended Dec'07.
Highly diversified userbase
ICIL's products find application in many industries, including steel, mining, cement, petrochemical, sugar and chemical industries. The surge in the capex should translate into a good demand for the company's material handling equipment, gear motors and gear boxes, leading to higher revenues and consequently higher earnings
All set to enjoy higher revenues at minimal capex
The company so far has surplus capacity in MMPHE division that it was able to increase the asset turnover ratio significantly. There was hardly any investment made in last 5 years in this division, yet the sales and margins continued to increase. The company subcontracts for some of its equipment requirements. Now, the company has laid down a plan for investment of Rs 2.5-3 crore for this division. The factory shed is already present and the company needs to import the machineries. With the given expansion, the company is confident of achieving turnover of Rs 125 crore with out incurring further capex.
The company has surplus capacity in Gear and motor divison. In the existing plant, the company has a capacity to reach a turnover of Rs 60 crore in gearbox division with the current installed capacity.
Gearing for the growth of high-potential Gear Box and Motors business
In Gear Box and Motors division, the company manufactures gearboxes and motors catering to all industries (except automobile gear boxes and motors). All the customers of MMPHE division are also the customers of gear division.
The market size for this division is more than Rs 500 crore.
Though the gear business of the company is small in size and has not posted satisfactory results in the current year, the company is taking important steps to grow this business.
ICIL is leveraging on the strengths of its existing technology partner Danfoss Bauer in the gear business. The company has entered into a licence agreement with the German company for upgrading the technology in gear division and also to manufacture and sell the B-2000 series – the latest variety of gear motors and gearboxes available in India. These products enjoy a strong reputation globally for their cutting edge technology and shall complement the GMGBD's existing product range. Now, with this tie up (with Donfoss Bauer UK Company). There is a big opportunity for IC to be a manufacturing base for gearbox and motors for Donfoss. Further IC can sell the products in India and in South East Asia directly and can outsource it to Donfoss for the rest of the world.
Currently, the order book position in Gear division stands around Rs 5 crore and this will be the first time where the company will end FY'08 by sale of more than Rs 20 crore in this division. The company is hopeful for sale of Rs 10-12 crore in this division to Donfoss Bauer every year. Hence the additional sales will bring volume growth and company should get the advantage of economies of scale in this division.
Strong 49% jump in order book
The current order book position for MMPHE division stands on an average of Rs 52 crore vis a vis previous year average of Rs 35 crore, up 49%.
Attractive valuation and a strong candidate for liberal bonus
In FY 2008, we expect the company to register sales and net profit of Rs 95.28 crore and Rs 12.32 crore respectively. On a very tiny equity of Rs 2.39 crore and face value of Rs 10 per share, EPS works out to Rs 51.5. This EPS is expected to rise to Rs 65.6 in FY 2009. The share price trades at Rs 421. P/E on FY 2009 EPS works out just 6.4. This is attractive. It becomes more attractive considering the fact that it has fallen by 54% from a high of Rs 914 (on 11th January 2008) to the current price of Rs 421 without any change in its buoyant growth outlook. With book value expected to be near Rs 200 by the end of FY 2008, the company is also ripe for a liberal bonus issue along with FY2008 results.
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| 0403 (12) | 0503 (12) | 0603 (12) | 0703 (12) | 0803 (P) | 0903 (P) |
| Sales | 30.86 | 45.88 | 66.84 | 79.81 | 95.28 | 117.19 |
| OPM (%) | 11.1 | 10.5 | 16.6 | 20.2 | 21.9 | 22.3 |
| OP | 3.44 | 4.81 | 11.11 | 16.12 | 20.90 | 26.13 |
| Other inc. | 0.78 | 0.54 | 0.6 | 1.08 | 1.57 | 1.96 |
| PBIDT | 4.22 | 5.35 | 11.71 | 17.2 | 22.47 | 28.10 |
| Interest | 1.71 | 1.2 | 0.74 | 0.33 | 0.51 | 0.70 |
| PBDT | 2.51 | 4.15 | 10.97 | 16.87 | 21.96 | 27.40 |
| Dep. | 0.95 | 0.98 | 1.92 | 2.63 | 3.13 | 3.28 |
| PBT | 1.56 | 3.17 | 9.05 | 14.24 | 18.83 | 24.12 |
| EO | 0.00 | 0.00 | 0.00 | 1.31 | 0.00 | 0.00 |
| PBT after EO | 1.56 | 3.17 | 9.05 | 12.93 | 18.83 | 24.12 |
| Tax | 0.65 | 0.97 | 3.30 | 4.65 | 6.51 | 8.44 |
| PAT | 0.91 | 2.2 | 5.75 | 8.28 | 12.32 | 15.68 |
| EPS* (Rs) | 3.8 | 9.2 | 24.1 | 38.2 | 51.5 | 65.6 |
| * Annualised on diluted equity of Rs 2.39 crore; | ||||||
| International Combustion (India): Results |
|
| 0712(03) | 0612(03) | Var. (%) | 0712(09) | 0712(09) | Var. (%) | 0703(12) | 0603(12) | Var. (%) |
| Sales | 23.13 | 19.54 | 18 | 66.18 | 55.71 | 19 | 79.81 | 66.84 | 19 |
| OPM % | 22.3 | 17.9 |
| 21.1 | 17.8 |
| 18.6 | 16.6 |
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| OP | 5.16 | 3.5 | 47 | 13.94 | 9.91 | 41 | 14.81 | 11.11 | 33 |
| Other inc. | 0.43 | 0.3 | 43 | 1.17 | 0.73 | 60 | 1.08 | 0.6 | 80 |
| PBIDT | 5.59 | 3.8 | 47 | 15.11 | 10.64 | 42 | 15.89 | 11.71 | 36 |
| Interest | 0.12 | 0.07 | 71 | 0.33 | 0.21 | 57 | 0.33 | 0.74 | -55 |
| PBDT | 5.47 | 3.73 | 47 | 14.78 | 10.43 | 42 | 15.56 | 10.97 | 42 |
| Dep. | 0.78 | 0.72 | 8 | 2.23 | 1.93 | 16 | 2.63 | 1.92 | 37 |
| PBT | 4.69 | 3.01 | 56 | 12.55 | 8.5 | 48 | 12.93 | 9.05 | 43 |
| Tax | 1.59 | 1.07 | 49 | 4.31 | 3.02 | 43 | 4.65 | 3.3 | 41 |
| PAT | 3.1 | 1.94 | 60 | 8.24 | 5.48 | 50 | 8.28 | 5.75 | 44 |
| EPS* | 51.9 | 32.5 |
| 46.0 | 30.6 |
| 34.6 | 24.1 |
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| * Annualised on diluted equity of Rs 2.39 crore; | |||||||||
| International Combustion (India): Segment results |
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| 0712(3) | 0612(3) | Var. (%) | % to total | 0712(9) | 0612(9) | Var. (%) | % to total | 0703 (12) | 0603 (12) | Var. (%) | % to total |
| Segment revenue |
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| Mineral processing and material handling equipment | 17.25 | 16.03 | 8 | 74 | 52.26 | 44.85 | 17 | 78 | 63.27 | 50.38 | 26 | 79 |
| Geared Motor and Gear box | 5.97 | 3.66 | 63 | 26 | 14.39 | 11.27 | 28 | 22 | 17.18 | 16.91 | 2 | 21 |
| Total | 23.22 | 19.69 | 18 | 100 | 66.65 | 56.12 | 19 | 100 | 80.45 | 67.29 | 20 | 100 |
| PBIT |
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| Mineral processing & material handling equipment | 5.75 | 4.92 | 17 | 86 | 17.67 | 13.89 | 27 | 94 | 19.89 | 12.81 | 55 | 90 |
| Geared Motor and Gear box | 0.96 | 0.22 | 336 | 14 | 1.18 | 1.22 | -3 | 6 | 2.09 | 4 | -48 | 10 |
| Total | 6.71 | 5.14 | 31 | 100 | 18.85 | 15.11 | 25 | 100 | 21.98 | 16.81 | 31 | 100 |
| Less: Interest | 0.12 | 0.07 | 71 |
| 0.33 | 0.21 | 57 |
| 0.33 | 0.74 |
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| other unallocable exp. | 1.9 | 2.06 | -8 |
| 5.97 | 6.4 | -7 |
| 8.72 | 7.03 |
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| PBT | 4.69 | 3.01 |
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| 12.93 | 9.04 |
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| Capital Employed |
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| Mineral processing & material handling equipment | 13.67 | 10.26 | 33 | 24 | 13.67 | 10.26 | 33 | 24 | 10.81 | 14.06 | -23 | 26 |
| Geared Motor and Gear box | 25.95 | 18.83 |
| 45 | 25.95 | 18.83 | 38 | 45 | 20.26 | 18.47 | 10 | 48 |
| Unallocable | 17.72 | 10.87 | 63 | 31 | 17.72 | 10.87 | 63 | 31 | 11 | 2.49 | 342 | 26 |
| Total | 57.34 | 39.96 | 43 | 100 | 57.34 | 39.96 | 43 | 100 | 42.07 | 35.02 | 20 | 100 |
| Figures in Rs crore | ||||||||||||
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