CMP – Rs. 45.70
Lanco Industries Ltd. is a part of Electrosteel Castings Group and manufactures Ductile Iron Pipes, Pig Iron, Cement and Coke.
The company was originally promoted by Hyderabad based Lanco Group in 1992. The company set up a Mini Blast Furnace (MBF) in 1994 with a capacity of 90,000 TPA to manufacture Pig Iron. The company later entered into an arrangement to supply Molten Iron and Pig Iron to Lanco Kalahasthi Castings Limited, a group company whose manufacturing operations were located in the same premises as Lanco Industries. Lanco Kalahasthi Castings was originally engaged in the business of Iron Castings and Forgings, added high technology Ductile Iron Pipes manufacturing to its portfolio.
In 2002, both Lanco Industries Ltd. and Lanco Kalahasthi Castings Ltd. saw a change in ownership - Electrosteel Castings Limited entered into a strategic alliance with Lanco Industries and Lanco Kalahasthi Castings by acquiring 46.43% and 48.89% stake in the companies respectively. In addition to technological support, Electrosteel Castings also infused fresh funds into Lanco Industries by way of equity participation and re-modeled the financial structure, thus reducing interest costs. With funds infusion, Lanco Industries increased its Blast Furnace capacity from 90,000 TPA to 1,50,000 TPA and the capacity of DI Pipes was increased from 60,000 TPA to 90,000 TPA.
Lanco Kalahasthi Castings later merged with Lanco Industries in 2003, to take advantage of the close synergies in the business model of the two companies, since a large part of Pig Iron in liquid form is consumed by Lanco Kalahathi Castings for manufacture of Pipes.
The company as a part of backward integration set up a 1,50,000 TPA Coke Oven Plant. In 2006, the capacity of DI Pipes was further increased from 90,000 TPA to 1,20,000 TPA. In 2007, the 12 MW Waste Heat Recovery Based Co-Generating Captive Power Plant was commissioned and the plant started generating power from March, 2007.
Today, Lanco Industries Ltd. has fully integrated operations and has a large value addition chain starting from Iron Ore to DI Pipes. The company has capacity to produce 1,50,000 TPA of Pig Iron, 1,20,000 TPA of Ductile Iron Pipes, 90,000 TPA of Slag Cement and 1,50,000 TPA Coke Oven Plant. Setting up of its own Coke Oven Plant along with 12 MW Waste Heat Recovery Based Co-generating Captive Power Plant has further strengthened the value chain.
Financials
The latest financials of the company are given as under :-
QUARTERLY - LATEST RESULTS - Lanco Industries Ltd (Curr: Rs in Cr.)
| Particulars | Quarter Ended | Quarter Ended | Quarter Ended | Year Ended | Year Ended | Year Ended |
| (Jun 07) | (Jun 06) | (% Var) | (Mar 07) (12) | (Mar 06) (12) | (%Var) | |
| Sales | 100.51 | 65.45 | 53.6 | 369.37 | 302.96 | 21.9 |
| Other Income | 0.11 | 0.04 | 175 | 0.33 | 0.77 | -57.1 |
| PBIDT | 12.51 | 9.96 | 25.6 | 51.54 | 29.78 | 73.1 |
| Interest | 1.86 | 7.01 | -73.5 | 18.32 | 12.58 | 45.6 |
| PBDT | 10.65 | 2.95 | 261 | 33.22 | 17.2 | 93.1 |
| Depreciation | 3.58 | 2.83 | 26.5 | 11.57 | 10.93 | 5.9 |
| PBT | 7.07 | 0.12 | 5791.7 | 21.65 | 6.27 | 245.3 |
| Tax | 0.04 | 0.04 | 0 | 0.17 | 0.18 | -5.6 |
| Deferred Tax | 2.38 | 0.03 | 7833.3 | 5.67 | 1.94 | 192.3 |
| PAT | 4.65 | 0.05 | 9200 | 15.81 | 4.15 | 281 |
(Source: Capitaline)
| Latest Data As On 05/10/2007 | |
| Latest Equity(Subscribed) | 39.76 |
| Latest Reserve | 51.09 |
| Latest Bookvalue -Unit Curr. | 22.85 |
| Latest EPS -Unit Curr. | 5.13 |
| Latest Market Price -Unit Curr. | 45.7 |
| Latest P/E Ratio | 8.91 |
| 52 Week High -Unit Curr. | 52.4 |
| 52 Week High-Date | 9/27/2007 |
| 52 Week Low -Unit Curr. | 33.05 |
| 52 Week Low-Date | 3/7/2007 |
| Market Capitalisation | 181.7 |
| Stock Exchange | BSE |
| Dividend Yield -% | 2.19 |
(Source: Capitaline)
The benefits of capacity expansion and backward integration undertaken by the company have started showing in the financials of the company. Sales for Q1 of FY 08 are up 53% to over Rs.100 crores, PAT has grown to Rs.4.65 crores, from mere Rs.5 lacs for the same period last year.
The Potential of Business & Conclusion
Lanco Industries manufactures Ductile Iron Pipes which are used mainly in Water Supply and Sewerage applications. Considering the growing urbanization in the country and shortage of Adequate water infrastructure, which is a priority for the country, the demand scenario for DI Pipes is positive.
The government of India is currently implementing over $ 5 billion worth of Water Resource Management Projects. We believe the allocations for Water Resource sector will grow substantially in the coming years. The Union Government in its Finance Budget - 2007 has given special emphasis on providing pure drinking water to households and communities in the country and has extended exemption from excise duty on certain water purification devices & pipes of diameter exceeding 200 mm used in water supply systems.
India is a Water Constrained Economy - we still have a long way to go as regard providing Drinking Water to the villages. Majority of population of India does not get clean Drinking Water – the government is however determined to speed up the pace of Infrastructure development and has been earmarking greater expenditure for Irrigation and Water Projects in each Plan.
The company located in the state of Andhra Pradesh enjoys strategic locational advantage being close to Tamilnadu, Karnataka and Kerala. All these southern states have massive Water upliftment projects.
Lanco Industries has over the past few years taken initiatives which will enable it to emerge as a cost efficient manufacturer of Ductile Iron Pipes in the country – these include enhancing capacities, backward integration by way of setting up Coke Oven Plant and 12 MW Captive Power plant. These initiatives will hold the company in good stead in the years to come. The establishment of Coke Oven Plant and Captive Power generation will not only make it a fully integrated company but will also bring in substantial cost benefits, thereby enhancing profitability. For FY 08, we expect company to achieve revenues of Rs.425-440 crores and PAT of around Rs.26-28 crores, resulting in an EPS of around Rs.7. The company is therefore expected to conclude FY 08 with record Revenues and Profits, with its expansions and backward integrations undertaken a few years back, having gone on stream.
Lanco Industries therefore is a play on the Growth opportunities in India’s Water Infrastructure space and can be accumulated at the current price and on declines.
Ashish Chugh is an equity analyst and investment consultant based at New Delhi, INDIA. At the time of writing this article, he, his firm and dependent family members have a position in the stocks mentioned above. The author, his firm or any of his dependent family members may make purchases or sale of the securities mentioned in the report while the report is in circulation. The author invites readers to send him email and welcomes comments, feedback & queries at nexgenfin@yahoo.com.
This report has been prepared solely for information purposes and the information contained herein may not be deemed to be an investment advice. Such information is impersonal and not tailored to the investment needs of any specific person. The information contained herein is not a complete analysis of every material fact representing any company, industry or security. The views expressed may change. While the information contained herein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments and should consult with and rely upon their own advisors whether and how to use such information in making any investment decision. Neither the author nor his firm accepts any liability arising out of use of the above information/ article.
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