Pumping up growth The company is all set to accelerate its sales growth and improve margins on the back of capacity expansion and increased Parent focus
Yuken India is leading player in power saving Oil Hydraulics. It manufactures Hydraulic Pumps & Valves. Yuken India was incorporated in 1976 in technical collaboration with Yuken Kogyo, Japan, which also holds 40% stake in the company. The Indian promoters hold 12.5%. In total promoters hold 52.5% of its small Rs 3.00 crore equity. Yuken India manufactures hydraulic equipment, including hydraulic pumps for industrial and mobile applications, hydraulic valves, mobile valves and complete hydraulic systems to suit customer-specific requirements. Besides pumps and valves, it also manufactures cylinders, accumulators and power packs. In some of its latest product developments, Yuken introduced Piston pumps with Electro proportional control. Hydraulics systems are customer driven, which include assembling of hydraulics valves, pumps, motors, electrical fittings etc. Diverse user-base Hydraulic devices are very popular in heavy engineering industry as effective means of automation. Yuken India's products find extensive use in various automation projects and retrofit projects in the heavy engineering sector. Some of the key sectors, which use its products extensively, are: Machine Tool Manufacturers, Plastic Machinery Manufacturers, Furnaces and Heat Treatment Plant Manufacturers, Automobile Manufacturers, Hydraulic Press Manufacturers, Steel Plants, Construction Equipment Manufacturers, Drill Rig Manufacturers, Material Handling Equipment Manufacturers, Dam Hydraulics, Power Plants, Defence sector, etc. Of all the user industries, Machine Tools accounts for nearly 60% of its total sales. To make an economy more globally competitive, lot of automation and hydraulic tools would be required. Hydraulic tools improve quality, lead to consistency, lowers fatigue, and improves safety and productivity. Capex plan in place to meet surging demand The company plans to incur capex of around Rs 8-10 crore in increasing its hydraulic casting products capacity by installing machineries in the existing foundry unit. The capex will be operational 6 months from now. This will increase the installed capacity of hydraulic equipment manufacturing from existing 160 tons per month to 500 tons per month. However the expansion will be spread over a period of 12 months from the date of operation. The capex will be incurred by mix of debt and internal accruals (50% each). Meanwhile the company will continue to debottleneck the existing capacities and achieve the volume growth. The capex, besides increasing capacity will also lead to lower raw material cost, higher productivity, better quality, lower rejection rate and lower manufacturing cost. This would enable the company to cater to the increased demands for its products at lower costs. Foreign JV will enable the company to make global products available in domestic market Recently the company entered into a joint venture with Hydrocontrols spa Italy to produce and market state-of-the-art Mobile Control Valves, which cater to, agriculture, construction, earth moving and lifting machineries. With this global products will be made available in the domestic market. Successful China foray The company has also successfully forayed into Chinese Steel Industry by successfully commissioning Hydraulic System for a Cold Rolling Mill Line in China for M/s Changshu Everbright Material Technology, River Side Industrial Park, Changshu, China. Yuken India supplied hydraulic systems to complete Pickling Line of Cold Rolling Mill. China being a very big market, this successful foray will enable the company to expand business in that country. Impressive results Yuken India has registered an 8% rise in its standalone revenues to Rs 19.67 crore for the quarter ended June 2007. The month of April and May are the leanest of months for the company. OPM rose by a good 140 basis points 8.5% to 9.9%. OP grew 26% (to Rs 1.95 crore). Other income grew 120% to Rs 33 lakh and interest cost was stagnant at Rs 58 lakh. Thus PBDT was up by a good 52% to Rs 1.70 crore. Provision for depreciation fell 4% to Rs 49 lakh. Thus PBT zoomed 989% to Rs 1.21 crore. As total tax grew 55% to Rs 45 lakh, PAT skyrocketed 138% to Rs 76 lakh. The management has confided that the June quarter revenue growth was just 8% because of the seasonality of the business. However, it is confident that sales growth will rise in the coming quarters. In FY 2007, it had registered standalone sales growth of 21% (to Rs 85.10 crore) and standalone PAT had grown 83% (to Rs 4.42 crore). The management expects 25-30% topline growth going forward, with higher profit margins. The management is further confident that the topline growth will further rise in FY 2009 due to expansion getting fully on stream next year, its profit margins should also continue to improve. Notably, Yuken India has four subsidiaries namely, Yuflow Engineering, Coretec Engineering, Sriplas Engineering and Prism Hydraulics. Its consolidated EPS has always been higher than standalone EPS. The Japanese Parent has increased its focus Looking at the encouraging demand scenario in India, the Japanese Parent has started to increase its focus on the company. It now feels the Indian company is one of the most important of its many subsidiaries. Also lot of independence has been recently given to the Indian company to drive the growth going forward. Attractive valuation For the FY 2008, we expect Yuken India to register standalone sales and net profit of Rs 103.55 crore and Rs 6.98 crore. EPS works out to Rs 23.3. Yuken India provides a lucrative opportunity to invest in a growing MNC engineering company at a P/E of just 10 (share price of Rs 233).
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Sunday, September 16, 2007
Yuken India - multibagger
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