Anup Engineering Ltd. Transformation Journey in Heat Exchanger Industry
"Learn about Anup Engineering Ltd.'s transformation journey in the heat exchanger industry since its demerger from Arvind Ltd. in 2019. Explore their product profile, industry overview, and key milestones leading to increased market reach and profitability. Discover how professional management and strategic growth initiatives have propelled the company forward."
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Presentation Transcript
ValuePickr 2019 Stock Idea Presentation Anup Engineering Ltd - Ankit Gupta
Disclaimer The stock discussion is not a recommendation. I am not a registered SEBI analyst or an adviser. I am biased as I and my family hold the stock
What does the company do? The company was demerged from Arvind Ltd and listed on stock exchanges in March, 2019 Engaged in design and fabrication of process equipment including heat exchangers (80 90%), pressure vessels, centrifuges, columns/towers and small reactors Heat exchangers are used to transfer heat or cooling from one liquid to another. Key industries served oil & gas refineries, fertilizers, chemicals, pharmaceuticals, food and other allied industries Technical collaboration with Lummus Technology for special High Efficiency Heat Exchangers (Helixchanger)
Product Profile Source: Anup s Presentation
About the industry Heat exchanger is a USD 21 billion industry globally used to increase efficiencies Largest players in the industry include: - Alfa Laval (>30% market share), Kelvion (Germany), Hisaka (Japan), SPX Flow/APV (US), SWEP (US) High profitability margins with many companies reporting gross margins of more than 45%. Alfa Laval has EBITDA margins of 14 15% while its Indian subsidiary also has EBITDA margins of 19%. Threat of competition from emerging markets:
Transformation journey of the company Despite being in the industry since 1972, the transformation journey of the company company s current CEO, Mr. Rishi Roop Kapoor joined the company in 2010. He is an IIT Roorkee pass out and had experience in Godrej & Boyce for over a decade. Lalbhai family is not involved in day to day operations of the company and the company is professionally managed The company has become a net cash company during the past few years and generates healthy cash flows 300 32 28.36 27.69 started after 26.31 28 23.76 22.33 250 24 18.39 200 243 168 222 20 13.76 136 134 150 16 105 12 100 73 8 42 42 50 32 24 4 18 11 5 - 0 FY13 FY14 FY15 FY16 FY17 FY18 FY19 Revenue PAT EBITDA Margin (%) Revenue 6 Year CAGR - 22% EBITDA 6 Year CAGR - 36% PAT 6 Year CAGR - 43%
What led to the transformation? Increasing market reach with increasing exports Empanelment with large EPC players Even approved for global projects Improving designing and manufacturing capabilities one of the rare companies with entire range of metal processing capabilities under one roof Increasing complexity and weight of the product manufactured Sticking to deadlines and avoided paying liquidated damages - Gained confidence of customers leading to repeat buys
Peers Pure play companies like Patel Airtemp and Tema India & large capital good companies like L&T, ISGEC and Thermax Anup has highest margins amongst its peers and even better than much larger and diversified player One interesting thing to note is the healthy GM of pure play heat exchanger cos
Way forward All time high order book of the company 300 crore by end of FY19 largely from domestic market Expanding capacities Target to spend 150 crore in capex for brownfield capacity in Odhav, Ahmedabad and greenfield capacity at Kheda 40 kms from Ahmedabad to be funded through internal accruals Looking for further technological tie ups to enhance capabilities Targeting 30% growth in revenue in FY20 and 1000 crore over then next 4 5 years
What is attractive about the company? Large industry size globally new orders expected from all round the globe to improve efficiencies and cleaner fuels from refineries Euro VI and BS VI implementation. Valuation 42 crore PAT reported in FY19 and market capitalisation of around 500 crore currently. Healthy growth expected in revenues and PAT in FY20 Attractive industry dynamics with many players reporting attractive gross margins Net cash balance sheet
Key Risks Lumpy business less visibility of revenue beyond one year Largely dependent on oil & gas segment Peak margins Track record of having margins in the range of 24 28% over the past 5 years Working capital intensive operations Risk of CEO leaving the company Rs.40 crore of loans & advances extended to Arvind Ltd (interest bearing though)
