Lloyd Electric and Engineering

Message

   Lloyd Electric and Engineering – Wired to grow
Lloyd Electric (CMP Rs 138.00) is engaged into the business of manufacturing heat exchanging coil for air-conditioners. The company has been making supplies to all the major air-conditioner manufacturers in India. As forward integration to manufacture project the company shall now be manufacturing air-conditioners for Samsung and LG from its Himachal and Uttaranchal plants. Lloyd electric shall also be manufacturing air conditioners for the Delhi Metro and to facilitate this project it has It has tied up with an Australian company. 
More-over, the company shall be manufacturing heat exchanging coils for refrigerators for which technological know-how is being sourced from a Korean company.

Market price

Rs 138

Market Capitalization

Rs 380 crores

Eps Fy 07 (E)

Rs 20 plus

RoE (FY 06)

18.24%

Book value 

Rs 37.88

Operating Margins FY 07 Q1

11.29%

Operating Margins FY 06 

9.17%

Sales FY 07 Q1

Rs 124.50 crores

Sales FY 06

Rs 352.52 crores

Net Profit FY 07 Q1

Rs 11.42 crores

Net Profit FY 06

Rs 28.12. crores

During the quarter ended June 2006 the company’s sales was at Rs 124.50 crores as compared to Rs 352.52  crores for the full year of Fy 06. Profit during the same period increased to Rs 11.42 crore against the full year profit of Rs 28.12 crore in the previous year. Recently there has been a jump in operating margins.  This coupled with increased sales led to the growth in profits. This Management attributes this outstanding performance to high levels of productivity and efficiency in overall operations 

Clearly the first quarter appears to have been the point of inflexion for Lloyd engineering. In case the company is able to maintain the same growth trajectory (which looks likely) the stock could be seriously re rated from these levels.

Last year (FY 06) the company increased its capacity to manufacture and assemble about 200,000 air conditioners per year. Lloyd’s agreement to contract manufacture air conditioners for Samsung, Electrolux and Carrier shall primarily come from the Kala-Amb (tax haven) plant. The management says that the result from this plant has been “remarkable”.

The manufacturing facility is being further augmented by putting up another plant to assemble 200,000 Air conditioners. Once on stream this facility shall substantially increase revenues and bottom line. A back of the envelope calculation shows that a 100% increase in capacity with assured buyers should raise revenues and the bottom-line by an equal amount. This means that the stocks could also double over the next 24 months.

With increasing disposable income consumer spending on durables like air conditioners and refrigerators is bound to go up. It is therefore up to the management as to how they can scale up their operations to meet to these growing challenges.Read about more the Indian consumer  by clicking on the following link.  http://www.theequitydesk.com/india_story.asp

Recommendation: The stock falls into the high risk high return category. Temporarily it can fall very badly in case the markets decide to move south and is suitable for investors who are willing to take a high risk exposure to their portfolio. The present price discounts its estimated Fy 07 EPS by 7 times which makes it a growth cum value play.  Nilesh Shah Of prudential ICICI is very bullish on this stock and holds over 15,00,000 shares in the Pru ICICI Emerging STAR fund.

Edited by basant - 21/Sep/2006 at 11:37am