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 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
cng stations are already on the roll in gujarat mainly by adani, gspc, gail and in south gujarat by guj gas.
order book visibility is for 1 year because the company does not entertain orders with low margins. order book visibility pattern for the company has been the same since I have been tracking the company since around 1.5 years. I think players in this space are slightly different from infrastructure players where orderbook visibility are much higher but here margins are much higher.
According to me this is a pure play on PE rerating which is bound to happen sooner or later in the current bull markets we are in.
Hi Hitesh, Patels Airtemp is a very small part of my portfolio and I am taking a relook as the stock appears to be very cheap. The stock price has practically not moved in the last 3-4 quarters and the PE is currently around 5 (assuming a flat EPS of 17-18 in FY11) and a div yield of 2%.
1). How are they involved in the new CNG stations? From their product category I cannot figure out something that is used in a CNG station. Also, I did not see any mention of that in the annual report.
2). How does this company (along with other capital goods companies) look on the charts?
Regarding CNG stations giving business to patels airtemp, I think some part of the CNG station entails some HVAC equipment.
Current order book is around 72 crores as on Sep 2010 which gives visibility for atleast next 3 quarters.
I think FY 11 could be a steady year with EPS expected to be around 19-20 and with user industries gathering pace, it could do better in FY 12.
This is a low downside risk kind of stock where one has to wait for it patiently to catch market fancy. Once it does so, it can really fly.
Technically there is nothing to write home about in this stock. It is trading in a wide trading range of around 80 on downside and 125-130 on downside. This consolidation could continue for some more time but once the compressed spring uncoils, things could turn real interesting.
The price is at the moment significantly lower than earlier. The promoters have suddenly started buying since the last quarter; have bough 2% of the company.
Hi Hitesh, are you still tracking this one? Could you please share your recent analysis/comments on the company? At CMP looks like heavily undervalued. Do you think with the change in govt there could be uptick in industrial capex of the country and Patels will get benefit of the same?
**N G Patel, Chairman & Kamlesh Shah CFO add the call.**Highlights by Capital Mkt;
Sales for the first six months grew 2% to Rs 37.49 crore. PAT stood the same at Rs 2.59 crore.For the quarter ended September 2014, sales grew 17% to Rs 21.84 crore and PAT was up 20% to Rs 1.56 crore.The company has order book of Rs 135 crore.Its hopes to achieve sales of Rs 72 crore for the balance six months.It targets to have sales of Rs 110 crore in FY 2015.
In FY 2014 exports were 25 crore and in FY 2015 it expects exports to be at Rs 30 crore. It has already executed exports of Rs 11 crore for the first six months. The company has enough orders to meet its export target.Exports will continue to be at around 30% of company’s sales.Order intake in FY 2015 so far was around Rs 80 crore.
The company has no debt. It only uses money for working capital and for that they are using directors deposit to the tune of Rs 6 crore at 10% interest.Billing cycle is from 3 months to 10 months depending on the kind of orders.Its major clients are from capital goods (refiners) and fertilizer companies and also air compressor manufacturers.
It caters to almost all the leading refinery companies. In air compressor also it caters to leaders like Ingersoll Rand, Kirloskar, etc.Oil and gas companies are going to have constant expansion for the next few years and so the management is happy about its prospects.Current capacity utilization is 50% the company has enough capacity to achieve sales of Rs 200 crore.
It hopes to achieve sales of Rs 200 crore in next 2 years by adopting the sub contracting model. Margins in subcontracting orders will be 1% less but big volumes will come so overall the company will be beneficial.The management is constantly increasing its stake. Last year it increased its stake by 5%, which is the maximum permissible limit in a FY. This year they have increased their stake by 1% and if everything is as per plans they will increase the stake by another 4% in FY 2015.
The management sees good demand in its business. It thinks that there will be terrific opportunities from the nuclear power plants.It will try to get good orders from eastern Africa where there are many refining companies.Its competitors are companies like ISGEC, L&T, Godrej etc.The company has high retention rate of customers.
They also have supply agreement with company based out of Canada. The canadian company is working at full capacity and hence the orders are executed by Patel in India as they are looking for low cost suppliers.
company is becoming a supplier to big international manufacturers. adversity in the form of sluggish domestic markets forced the management to look abroad. now the payoffs will come from both India and abroad.
Can you please add more details on OEM deals ? There is no news from company on this. Also, does Patels sell Air Conditioners under its own brand we well ? What is it called ?
Company used to report order book sizes, but it stopped in the recent quarters. But, theres nothing to worry as I have learnt the order book is growing gradually and easily gives visibility for next 1 year.
Tracking PAT closely. They have target to achieve around 140 cr of revenue for FY16. Also have ambitious target of 200 cr for FY17. But order inflows are little slow. When capex cycle turn positive strongly, hope order book will grow faster. Registering co in few countries especially gulf. I think bcz of lower crude price, few projects are delayed and so the order book growth.
topline growth yoy is lower. however lower raw material and interest costs have helped improve profitability.
management seems to be very aggressive in reducing debt - interest
outgo has fallen by more than 50 per cent yoy. in the past management
had indicated good growth in the order book, but no update has been
given with the current results.
disclosure: holding. have also added good quantities during the recent fall.
While total debt has reduced from 25cr to 10.1 cr, receivables have increased from 23cr to 35cr. Net working capital assets (stock + receivables - payables) has increased from 35cr (113 days of sales) to 46cr (130 days of sales). Cash balances have also reduced from 22cr to 6cr. All this points to a stress on cashflows. Reduction in short term debt (22cr to 4.6cr) will not be a definitive indicator of permanent reduction in debt, as it could go up based on project requirements. I dont think that their order book growth is much to speak about, else they would have already announced it.
However, I like the company. Because of its small size, the impact of economy turning around could be big. Their products are of acceptable quality. Full tax paying and dividend paying company.
Disc.- invested a miniscule portion of my pf in the last 1 year. May add depending on order book information.
Observations on the Annual Report of Patels Airtemps:
Management has been steadily buying shares from the market.
company has been steadily reducing debt. Indebtedness has fallen from Rs 25 cr in the past year to Rs 10.25 cr. Lots of cash lying in its
current account have been used to pay off debts - a very good move.
However loans taken from related parties by way of long term borrowings have gone up substantially: Rs 3.21 cr to Rs 5.66 cr (I don’t know if this is a positive or a negative).
4.Management has reduced working capital loans from Rs 22 cr to Rs 4.59 cr
5.Another big positive is the growth in advance from customers as management focuses on higher value products - from Rs 5.61 cr to Rs 9.65 cr. This comes at a time when industry continues to face severe headwinds.
Simultaneously, management has reduced advances given to suppliers from Rs 3.32 cr to Rs 1.48 cr. This shows that management is driving a hard bargain from suppliers.
7.Long-term receivables are higher from Rs 2.16 cr to Rs 5.86cr.
Company has also increased the sale of supposedly high-value items like Air Cooled Heat Exchanger & Accessories from Rs 45.48 cr to Rs 69.75 cr. and pressure vessels to the tune of Rs 13 cr.
Topline is higher yoy and raw material cost is lower. Now it is not
clear how much of the profits are from lower commodity prices and how
much because of sale of higher value goods.
THOSE FROM ENGINEERING BACKGROUND CAN THROW LIGHT ON THIS.
