Veljan Denison- Capital Goods


(shreys) #1

Veljan Denison, is a relatively unknown company in the capital goods industry. It manufactures hydraulic pumps, valves, motors and power packs.
It derives almost 85 percent of its sales from hydraulic pumps. The promoter group holds roughly 75 percent of the shares. The company is led by Mr. V C Janardan Rao. The leadership team is well remunerated which gives me comfort. A high promoter holding could mean that their fortune is hinged on the performance of the company.
Financials:
March 2017:
Sales:88.6 crores
Net Profit:14.53 crores
March 2016
Sales: 85.27 crores
Net profit: 12.54 crores
March 2015
Sales: 82.7 crores
Net profit: 13.04 crores
March 2014
Sales: 72.17
Net Profit: 8.44 crores
March 2013
Sales: 73.02 crores
Net Profit: 9.95 crores
Comments: As is evident from the numbers postedo their growth over the past 5 years has been anemic. Unimpressive.
However, most companies in the capital goods sector have been experiencing poor growth. But, when times get better companies like Veljan Denison will be beneficiaries.
Financial ratios:
Return on Equity:
13.52 % ( March 2017)
Return on Capital Employed:
15.41 % ( March 2017)
SWOT Analysis:
STRENGTHS:
1)53 years of experience in the fluid power industry.
2) Led by a technocrat.
A person who has a nuanced understanding of this industry.
3) Good product quality
WEAKNESS:

  1. In my opinion the biggest weakness is it a relatively small size.
    The threat of bigger companies snatching their market share looms.
    But, their small size could also be a blessing in disguise. It’ll be easier for them to rudder the company in the right direction and be sensitive to the economy’s demands.
    OPPORTUNITIES:
    Instead of quoting numbers I’ll share anecdotes. Fluid power is everywhere- Highway maintenance vehicles, military aircrafts, landing gear, cranes, spacecrafts etc.
    Humongous opportunity. As the economy grows the requirement for these goods and auxiliary services will increase substantially.
    THREATS:
  2. Cheap imports flooding Indian markets
  3. Price war with larger companies
  4. Emergence of Chinese and Italian companies
    Comments:
    At current valuations and a cursory look at their past shows that the company has been a decent performer.
    In a market where there’s a dearth of sanity in valuations Veljan Denison seems like an oasis.
    Decently priced and it could be a play on India’s growing economy.
    Now, to be frank, what drew me towards this company was their marine division.
    I’ve been a ships fan boy. And, knowing that they prepared systems for controlling ships they swept me off my feet. :slight_smile::slight_smile:
    Their marine division may not be a major contributor to their business but I respect the work that goes into developing such complex technologies.
    marine_brochure.pdf (1.4 MB)

Disclosure: Not invested yet.
Evaluating the company.


(Manish Vachhani) #2

(Manish Vachhani) #3

(HIMSHAH) #4

Just recently attended AGM of the company.
Company facing skilled labour problem, and so they have suffered in the production . They have changed incentive and salary to retain skills.


(HIMSHAH) #5

From their talks it seems pay scale is low . So their may be mass migration of skilled labour. Also from annual report their labour charges are only 7 % of cost.

One debatable point was company wants to give donation of 5 cr to hospital. I personally thought it as good . But few had objection as share holders fund is used.
I found management very honest .