ITL Industries - adding cutting edge to my portfolio


(Utsav Shrivastava ) #1

Why I like ITL Industries ( http://www.itl.co.in ) . BSE code 522183

Details:

  • Mcap 60 cr
  • CMP 180
  • 10 paid up
  • 3.2 cr equity.
  • 44% promoter stake
  • Zero pledge
  • Established in 1986 …IPO in 1993
  • Continuous dividend paying track record
  • Based out of Indore

Debt position ( as on 31/3/17 )

  • Long term debt 132 lacs
  • Short term 1002 Lacs
  • Net current assets of 2000 lacs++ which includes cash of 105 lacs

What does the co do

  • Co is mainly manufacturing high end cutting equipment catering to the steel industry

  • All products are developed inhouse and cater to both domestic as well as overseas markets

  • Products include Band Saw machines, Circular saw machines, Power Hack Saw machines, Special Purpose machines, Tube mills, Blades and cutters.

  • These are used by anyone who needs to cut steel

  • Make machines ranging from 100mm to 3000mm capacity.

  • Also has trading division (~30% of revenue), selling cutting tools and lubricants for its machines as well as distributing hydraulic components of EATON, USA.

  • Representative offices in US, Germany, Italy and all across India.

  • Service network across India.

  • 1 plant in Indore where all divisions are co-located

  • Did 69.78cr of revenue in FY17… up 24% yoy

  • Did 7.32cr of EBIT…almost 10.50% margin, up 38%

  • Did 3.80cr of PAT…almost 5.5% margin, up 72%

Q2 analysis

  • 25% jump in revenue :white_check_mark:
  • 44% fall in interest cost✅
  • 117% jump in pbt✅
  • 144% jump in PAT :white_check_mark:
  • 190 basis points jump in PAT margin✅Now 4.4%…will slowly move to 10% over next few quarters as operating leverage kicks in
  • balance sheet also showing all round improvement with reduction in loans, lower days outstanding and better cash position.

What I like about this co

  • Cos products are unique and have little or no competition in India
  • 1st generation consisting of 2 brothers ran the company conservatively and brought it to this stage. Now 2nd generation, having completes their studies from the best global colleges, is now fully involved and determined to take this to the next level.
  • In a bad year for industry , the company was able to grow by 24% to almost 70cr last year. I am expecting them to do appx 90cr of sales in FY18, a growth of 28%
  • If company does 90cr of sales, we could see operating leverage kick in and margins expanding to 15% from 10.50%. PAT margin could see expansion to 8%
  • Global majors have started getting their products made from them .
    http://www.mepsaws.it/thor1020/?lang=en
    http://www.mepsaws.it/category/prodotti/velocex/?lang=en
    This is a testament to their quality and reliability
  • Slowly receivables will reduce as sales move to cash and carry
  • ROCE is 24.66% based on last years numbers….i think it will cross 40% based on FY18

H2 estimate

  • last year h2 was appx 42 cr. Assuming 25% growth is here to stay, h2fy18 should be 52cr
  • we may end year with 85 to 90 cr revenue
  • last year h2 pat margin was 6.79%. Extrapolating q2 cost heads, I get 6cr operating profit for h2 and about 4.5 cr pat
  • thus, full year pat expected is 1.6+4.5=6.1
  • eps 19😋

One of the cheapest profit making cos available today.

Product range can be seen from the following videos
http://www.itl.co.in/index.php?option=com_content&task=view&id=63&Itemid=124

Valuation projection

  • buy at 60cr mcap
  • By 2020, I expect revenue at 160cr , with 10% net magin
  • 16cr PAT
  • 25 p/e can be given, given high ROCE and negligible debt
  • 400cr target mcap
  • 5x in 30 months

Typically in these small companies…keeping in mind allocations risks…difficult to make a LOT of money.

Disclosure : Own 1% in the company along with many illustrious names…average cost would be around 140…I keep buying intermittently whenever i have some spare cash.
This is NOT a buy recommendation.
Mcap when posted : 60cr


(Kuldeepjadeja) #2

Good one …Do you have direct communication with promotors…

Disc-
I have bought some shares at 60 but exited at 132 levels…


(Gaurav Agarwal) #3

I have following questions

  1. What is the capacity? What is the capacity utilization?

  2. If capacity is fully utilized what are the expansion plans?

  3. Who are the competitors?

How can you assume 25% growth? Do you have any basis for such assumption? I see almost no growth in the company. If you look at screener in FY10 company’s revenue was 67.6cr whereas in fy17 it is 69.79 almost no growth in 5 years!!

A simple search on web will give many manufacturers of BandSaw Machine.

http://www.bandsaw.in/
http://www.cobramachines.com/


(Utsav Shrivastava ) #4
  • Capacity utilization - almost full if they do 90-100cr this year

  • Expansion in full swing, new assembly shed with modern facilities will be ready by March…enough for 150cr . All done through internal accruals

  • Competitors- ITL caters to top clients who do not opt for other Indian manufacturers who are too tiny in front of them.
    They mainly compete with imported machines which are less cost competitive than them. Since the tech is indigenous, they dont have to pay royalty to anyone.

  • Earlier revenue was stagnant as they didn’t do any marketing and were primarily doing work for SAIL. With new gen coming in, they have been able to make big inroads into the overseas markets and also local demand is picking up.

  • Last 5 years cant be a benchmark for future numbers given the change in business strategy and advent of next gen,

  • From my checks with trade people, the ITL machine has certain qualities which makes it unique among Indian manufacturer’s. One is the level of automation and electronics used. The other is the output which is absolutely burr free. The following videos taken from youtube gives a sample of their capability.

I am sorry my knowledge of the company is restricted to this…and i will be not competent to answer any more queries on this company.

Prospective investors should do their own thorough due diligence before investing. All info posted is sourced from public domain , channel checks and competitors.


(M S S Murthy) #5

As per my calculations ROE based on FY2017 figures is ~ 17% and ROC is a little less than that . Even then this improvement in both ROE and ROCE also indicates an orbit change in the scope and area of operations and hence I AM invested in this company. This is basically an " Engineer driven company " as we could see from the profiles of the promotors and the core group of management. This is very reassuring.


(Deepak Saini) #6

My 2 cents on ITL Industries…

  • They have a e-supply online portal which may pick up very soon.
  • ITL has invested significant money on R&D which enabled them to introduce new and enhanced machines in short span of time. They spent 2.7% of total revenue on R&D, which is exceptionally good for such small company.
  • Internal r&D helped to develop new parts resulting in import substitutes in selective areas which in turn has brought down the cost of import of raw materials from 13.89% to 9.31%
    -There is no technology import for any of their machine. I consider that as big positive
    -Contingent liabilities decreased from 3.65Cr to 1.14Cr
  • Cash on books increased from 88L to 1.12Cr (27% UP), Annual Cash flow from operating activities increased from -43L to 5.65Cr(a whopping 1440% UP)

ITL Industries is still unexplored stock which looks good considering above mentioned facts. Despite of recent run up, It has potential to give multibagger returns from hereon as well.

Disc: Invested a significant part of my pf.


(Somitosh) #7

Unable to find information about expansion plans, please post the link about expansion plan or please discuss about expansion plans


(M S S Murthy) #8

Investment in R&D in my opinion is one of the most important factor that help any company to perform better than average over extended periods of time . A good elaboration of this oft neglected factor is nicely covered in a case study of Motorola company by Philip Fisher in his monumental book titled Common Stocks and Uncommon Profits . My hunch is that we are likely to witness manifestation of this factor in the performance of ITL in next several years.

Good point.Thanks for highlighting.


(Somitosh) #9

Unable to find anything about expansion AR in 2015-2016 & 2016 - 2017 , I cannot find anything about their expansion in BSE website and Google, thestocklady give some link about expansion plan, when you post any new topic , it’s your responsibility to discuss details, you told they expansion through internal accrual but I don’t find any thing about their expansion, I think moderator should take appropriate steps about the matter


(Utsav Shrivastava ) #10

The information was taken from competitors and distributors. In absence of any published info…it may be ignored.


(Somitosh) #11

Many many thanks to you


(Deepak Saini) #12

Rightly Said.
ITL is a multiyear story which is still in nascent stage. There is an old disclosure on the bse http://www.bseindia.com/xml-data/corpfiling/AttachHis/2b9c05ed-35d8-48a0-ae27-84d2efc57551.pdf

This appreciation from SKOTCH group and COSIDICI is good enough to highlight the impeccable management of ITL Industries.

Since the company mcap is still sub 100cr, it is not in watchlist of any Institutional Investor.


(Sd) #13

@thestocklady Research must reflect in market prices and there you have done your work for ITL & MEERA. Unfortunately could not go through your reports on time.


(James Sebastian) #14

Q3 Results are out and continuing to post very good results.

Revenue of 20.46 crore vs 17.36 crores (17.8% YoY)
Net profit of 135.94 Lakhs vs 82.15 Lakhs (65.48 % YoY)
EPS of 4.58 vs 2.52 (81.74% YoY)

complete post can be viewed at https://www.bseindia.com/xml-data/corpfiling/AttachLive/1ff454c6-7359-4b66-9acd-f61a1bd7c013.pdf

Disc: Invested ~2% of PF


(M S S Murthy) #15

The results are the best ever for a December Quarter .The arithmetic is simple . For the 9 months period ended 31st December 2017 sales are up by 23 percent where as the profit at gross and net levels is up by MORE THAN 70 PERCENT. The company is ,with out any doubt, is scaling up .The sales as well as profits at such situations are bound to grow in an exponential manner and i hope that will happen here too.I expect the company to notch sales of around Rs 82 Crores and a Net Profit of Rs 5 Crores for FY 2018 and an EPS of around Rs 14 to Rs15.One can have a discounting ratio of these earnings according to their own perception. I am thinking of adding quantities to my existing portfolio. With hardly 35 lakhs of shares and even less floating stock i perceive the share will be difficult to acquire for a retail investor in one year .


(Utsav Shrivastava ) #16

Last year q4 was 2cr. Company is beating last year by 50% in current numbers…no reason why this shouldn’t continue. So u may end up with 3cr pat in q4…@20 eps for the year.

Another interesting fact i came to know from buyers is that if u want an ITL machine…u have to pay 90% upfront and there is a wait time for 3 months. This is reflected in the interest cost dropping by 50% yoy. Soon it may move to negative working capital.

If the so called steel recovery cycle does happen…this co is at the right place at the right time.

Disclosure : increased shareholding in Q3.


(harishm) #17

I am keen to know how you got to know this information from the customers? How did you get in touch with them?


(Utsav Shrivastava ) #18

I have an uncle in the trade. He introduced me to people who buy from them.