The company manufactures and distributes specialized critical to operate and recurring consumables for the global mining industry.
It is immune from capex cycles because it caters to after-market spends (maintenance). The after-market spends are approx. 3 times more than upfront capex for miners.
It has successfully integrated 4 acquisitions and is the world’s 2nd largest polymer based mill liner by revenue. The company operates in an oligopolistic industry with high entry barriers.
The management has guided for long term sustainable operating margins in the range of 18-20%.
They have recently installed SAP to make their operations more efficient.
The company has a strong R&D focus. It has 36 members in this team and they have been granted 8 patents.
They have both domestic and international manufacturing setups.
Latin America and Africa both contribute around 20-25% each to revenues.
The pending order book is of 600 CR.
A global mining boom is expected because in the last decade there has been a massive underinvestment in mining capacity AND there is a mad rush for renewal energy + electrification among both developed and developing countries. India’s focus on manufacturing means it will produce and import more metals and minerals.
Risks:
Recent acquisition of McNally Sayaji is for mining equipment which company feels is complimentary and will open more doors for it. However, this is a lower margin business and we need to track the positive benefits of this acquisition going forward.
With China slowing down, US & EU to be in recession soon, the prices of metals and minerals will fall. This does not encourage investment in building more capacities. Company’s claim of being immune to global capex cycles will be tested and validated then.
At current trailing valuation of 34 PE, the company is slightly overvalued. It’s 3-year median PE is 27.3. This means market is factoring in superior results for H2.
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