Loyal Equipments

Stock Opportunities Untested - but worth a good look
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Intro

  • Est. in 1993 in Ahmedabad, specializes in designing, manufacturing, and commissioning process equipment for capital goods industry including pressure vessels, heat exchangers, auxilary skids and modular packages.
  • Sectors: Oil and gas, petroleum, chemicals, fertilizers, power & steel.
  • Certifications: SMERA, ASME “U” & “U2”

Management

  • Alkesh Rameshchandra Patel, Chairman & MD: 30+ yrs of experience, working since incorporation. Mechanical Engineer by profession.
    • Father was earlier the Chairman until death in 2020 but had 40+ yrs of experience, had worked in Ingersoll Rand for 20yrs
  • Jyotsanaben Rameshchandra Patel, WTD: founder promoter, looks after overall administration and co-ordination of the Company
  • Helena Alkeshkumar Patel, WTD: Mechanical engineering, NYIT and working since 5-6yrs

Product Portfolio (& mkt sizes):

  • Pressure Vessels : used to hold liquids or gases at specified pressures (Domestic mkt to grow by 4.5% cagr to reach $62.7Bn by 2028)
  • Heat exchangers : a piece of equipment built for efficient heat transfer from one medium to another (widely used in heating equipments, refrigeration, air conditioning, chemical plants etc. ($809Mn in 2023, grow by 5.8% cagr to $1.3Bn by 2032)
    • Air Cooled Heat Exchanger: Dissipate heat from fluids to air, improving efficiency and reducing energy consumption
    • Shell & Tube Heat Exchanger: transfers heat between fluids without them touching directly
  • Skids
    • Auxilary Skids: compact, pre-assembled units that support the main equipment in industrial processes, these include necessary components like pumps, valves, or filters, mounted on a frame, ready to be connected to the main system. (Grow by 3.4% cagr)
    • Process Modular Skids: more complex, self-contained units that handle specific processes in an industrial plant. Pre-fabricated with all necessary components viz. pipes, instruments, controls etc. (global mkt at $100Bn in 2023)
  • Reciprocating & Turbo Packaging
  • Process Modular Packaging : Cryogenic Hydrogen Recovery Unit, C02 purification plant etc.

Manufacturing

  • Loyal Equipments has the latest machinery, tools, skilled manpower, handling equipment, and various in-house facilities for smooth operation and quality product.
  • Company having 28500 sq. meters of land, in which infrastructure is setup over 3526 sq. meters with well-furnished office spread over an area of 136 sq. meters
  • Loyal Equipments has 7 well-facilitated fabrication bays with different capacity of EOT cranes, high-tech modern machines, and dedicated areas for Cutting, Welding, Rolling, SS fabrication, Finning, Equipment assembly, Shot blasting, Painting, etc.

Quality Check

Loyal Equipments is equipped with in-house NDT facilities like Dye Penetrate (DP) test, Magnetic Particle Inspection test (MPI), Hydro test, Pneumatic test, PMI (positive material identification) test, Ultrasonic (UT), Heat Treatment through modular furnace and outsources Radiography (X-ray). Loyal has experienced & qualified skilled manpower capable in quality welding with ferrous and non-ferrous metals.

Clients & Past Major Order Wins

Clients: Linde, Siemens Energy, BPCL, HPCL, IOCL, GAIL, Kirloskar, NRL, Reliance, Dresser-Rand, Ingersoll Rand etc.

Date Customer Product Amount (Rs.Cr) Time period
Dec’23 Kirloskar Pneumatic Pressure Vessels 6.82 7 months
Dec’23 Siemens Energy Industrial Turbomachinery India Separators with spare 5.22 6 months
Jun’23 Linde Engineering India Gas Product Skid & Booster Turbine Skids 3.55 7 months
Jun’23 Numaligarh Refinery Shell and Tube Heat Exchangers 11.36 10 months
Nov’22 Linde Engineering India Skid & Off Skid (Wet Air oxidation skid package) 2.36 9 months
Oct’22 GAIL Heat Exchanger 15.1 11 months
Jan’20 Linde Engineering India Business Agreement 20Cr/Annually for 5 yrs
Aug’19 HPCL Tube Bundles & Heat Exchangers 10.16
Jan’18 Kirloskar Pneumatic Air cooled heat exchangers 2.16

Future Roadmap

  • Plan to expand manufacturing by having an additional bay to enhance capacity
  • Open a marketing office in the UAE to tap into emerging markets, and setting up a manufacturing plant in the USA
  • Integration of IoT & smart systems into the products

Other Pointers

  • Issuing preferential shares upto 6 lakhs at an issue price of Rs.211
  • Design: in-house facility of design & engineering with international design codes, standards, software, tools, and a competent experienced team of engineers
  • Competitive Strengths:
    • Customized Product Offering
    • Quality Assurance and Standards
    • Existing Customer Relationship: helps in getting repeat business
    • Existing Relationship with Suppliers

Financials

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Comparitive:

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Disclosure: Not Invested; There wasn’t any post for this company and I had done research on this, would love to hear your views.

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Loyal Equipments AGM’24 Notes

  • Margins: Drop in GM in recent years due to increase in RM costs. Going forward expect ebitdm to grow to 22-23% with increasing scale
  • Order Book: In good shape, have good order book in place (15-20% higher YoY) but last 1-2 months is down due to elections but will pick up.
  • The recurring annual contract with Linde Engineering for 20Cr/annually will end in 2025 and it will get reviewed and mostly get renewed. The contract was to provide Modular Skids.
  • Modular Package/Skid is the major product which the other competitors don’t provide so have an advantage in here and the market is shifting towards modular skid.
  • Product Mix (FY’24):
    • Modular skid/package: 30-40%
    • Heat exchangers: 40%
    • Auxilary Skids: 10%
    • Pressure Vessels: 10%
  • Expansion Plan: UAE office will be completed in 6 months. Already in USA doing sales & marketing and now will add a manufacturing plant in USA on the demand of a customer which might start by FY26-27.

Key Concerns:

  1. Dependency on contracts/orderbook, top client (Linde) if doesn’t renew contract then revenues could be impacted too

  2. Competitive Intensity: There is no differentiation in products and the other key players in market are at a bigger scale/are more established. And according to Loyal equipments their MOAT/differentiation keeping them in the market is their product mix – they claim no one else supplies Modulary Skids but once competition starts supplying then revenues could be hit pretty bad as contribution is very high ~50%

  3. Working capital intensive business – Loyal’s revenue is dependent on large project by the user industry and typically the delivery period may vary from 30-150 days. If we look at its overall working capital days it remains between 100-200 days. These will also depend on dispatches during the year end.

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