Company is into engineering structures, precision fabrication, forgings, auto tubes, CR coils and hollow sections. They have 6 factories with end user industries being renewables, railways, auto and defense.
The company is increasing focus on higher margin value added products.
They are involved in prestigious projects like the Mumbai – Ahmedabad bullet train project.
In defense, they serve customers like DRDO, L&T defense, Godrej Aerospace, BrahMos Missile. Recently, they have incorporated a step-down subsidiary to focus on defense deals and have invested 40 crores in it.
The company exports to over 100 countries and has 600+ customers. They are ISO certified and have a NABL accredited Quality testing lab.
The company has about 500 crores of debt on its books. The management has stated that its goal is to become debt free within 3 years. The reduction in interest cost will boost bottom line and improve operating metrics.
Management has guided EBITDA margins to go from 8.5 to 9.5 within 2-3 years. They claim this will be sustainable as they are reorienting towards higher margin products. The sales are expected to go from 3500 cr to 5000 cr in 3 years.
The second generation of promoter family is also involved in the business.
They have recently raised 100 cr+ from promoters and institutions for capex and paying back debt.
The company is available at a favorable valuation of 21 PE and is doing a QIP of 200 cr for expansion, debt reduction and working capital management.
Sage One PMS has a minor stake.
Risks:
The cash conversion from profit to CFO has been consistently poor. Management has guided for improvement – something to be tracked.
Cyclicality of steel prices means company’s profits are also volatile. It can only pass on price changes with 1-2 months lag.
Management has to walk the talk on defense scale up and debt reduction – tracking this.
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