walchandnagar industries

Walchandnagar Industries Ltd. Cmp=600
Target=892
Duration=9 months
Promoted by Walchand Group, WIL was established in 1908 with small equity capital of 2.50 lakhs. Company is engaged in the fabrication of cement plants, sugar plants and critical equipments for space and defence sectors. WIL has consistent track record, steady performance, and has paid dividend for 75 years in its 97 years existence. Although heavy engineering is its core business, company also has small presence in Foundry, Infotech and hospitality sectors.

Performance Review: Financial Performance:- Year Ended. 30/9/05 30/9/06E 30/9/07E ----------- ------------- ------------- Sales 278.00 340.00 410.00 NP 7.72 13.50 16.50 Equity 3.00 3.00 3.00 Reserve 193.00 EPS (Rs) 25.73 45.00 55.00 For FY05, WIL achieved turnover of Rs. 278 crs., registering growth of 25% over previous year. PAT increased by 95% to Rs. 7.72 crs., giving EPS of 25.73 on small equity of 3 crs.
A) Heavy Engineering Product Segment: The segment achieved turnover of Rs. 23432 Lakhs (Previous Year Rs. 18714 lakhs) accounting for 86.93% of Company's revenue. The turnover increased by 25.2% as compared to the previous year. Eventhough the profit also improved as compared to the previous year, the increase was not commensurate with increase in turnover as the margins were affected due to abnormal rise in steel prices during the first six months of the year. During the year, Spherical Reactors for Numaligarh Refinery project using 65mm thick low Alloy material involving critical welding process were manufactured for the first time in the Country by the Company. Certain critical components for Defence Application were also manufactured for the first time in India during this period. Company also completed an important EPC project for Nuclear Power Corporation. The overall order book position is reasonably good for all the products except the Sugar Machinery. However, with changing market trends it is hoped that for Sugar Machinery the Company will be able to book some indignous/Export orders in the near future. The orders on hand for Space, Defence, Nuclear Power, Boilers, Gear Boxes & Cement Machinery are comfortable and the Company is also participating in EPC Contracts for prestigious Defence Projects.
B) Foundry & Machine Shop: This segment has achieved revenue of Rs. 3081 Lakhs as against Rs. 2539 Lakhs in the previous year. Both the sales and PBT have improved as compared to the previous year, due to continued increase in demand for CI & SGI Castings. The modernization and upgradation of Foundry is in progress and is expected to be completed by Feb. 06. On completion of the modernization, the division will be able to manufacture CI & SGI castings of larger dimensions, with better value addition and profitability. C) Other Segments: These include (i) the unit at Dharwad for manufacturing Pressure & Temperature Gauges and Sector Mechanisms (ii) Walchand Infotech Services Division (iii) Hospitality business. The total revenue from these segments was Rs. 686 Lakhs for the year 2004-2005 as against Rs. 543 Lakhs for the year 2003-2004. The unit at Dharwad improved its performance significantly both in turnover and profitability as compared to the previous year due to good marketing effort and overall improvement in productivity. The performance of the Infotech Services Division did not improve as the orders could not be booked for its product . The performance of Hospitality Division has improved as compared to previous year, due to measures undertaken for controlling wastages and reduction in fixed costs. Performance of the unit at Dharwad is expected to further improve as its products have found wider acceptance in the market. The unit has planned to improve its facilities to meet the increased demand for Pressure Gauges and Sector Mechanisms. The Hospitality Division is expected to further improve its performance by improving turnover and continuing efforts on controlling costs. Future Prospects: With higher GDP and buoyant industrial sector, prospects of WIL are extremely bright. Ofer info is rising. As in January 06, WIL has order book of Rs. 450 crs. In the recent past, WIL has executed some EPC type of contracts. Now, company has created a separate division named 'Walchand Projects Group' but avail of growing opportunities in this type of business. Its turnover has been growing during last few years and trend is likely to accelerate in future. Company has undertaken upgradation and expansion of manufacturing facilities. Valuations: Trailing 5 Quarters:- Q1 Q1 Q4 Q3 Q2 FY06 FY05 FY05 FY05 FY05 Sales 55.32 35.95 99.35 69.15 52.98 PBT 2.18 - 1.75 8.08 4.31 0.41 PAT 1.35 - 1.75 5.87 2.70 0.25 Equity 3.00 3.00 3.00 3.00 3.00 WIL has reported PAT of 1.35 crs. on turnover of Rs. 55.32 crs. in Q1FY06 compared to loss of 1.75 crs. in Q1FY05. It means, company has turned around by 3.10 crs. in Q1. It has been possible due to higher sales and lower metal prices. WIL reports best performance in Q4 (July-Sept.). We estimate that company should achieve turnover of Rs. 340 crs. and PAT of Rs. 13.50 crs. for FY06 which will give EPS of 45. Stock is trading at 14 times of FY06E Earnings. For FY07, turnover should further rise to Rs. 410 crs. and NP of Rs. 16.50 crs. giving EPS of 55. Its book value is Rs. 643. Market value of its investments is nearly Rs. 20 crs. which works out to around Rs. 67/- per share. Conclusion=Majority of big engineering companies are quoting at P.E. Ratio of 20-40 times. Looking at valuations in the peer group, WIL is definitely underpriced and also the Company is likely to grow rapidly for next 5 years