CRISIL Research has come out with its report on Thejo Engineering (Thejo). The research firm maintains SME Fundamental Grade of 5/5 for Thejo, indicating that its fundamentals are excellent relative to other SMEs in India.
Thejo Engineering Ltd’s (Thejo’s) H1FY13 results were in line with CRISIL Research’s expectations. Net sales witnessed strong y-o-y growth driven by the services business. Export sales declined y-o-y because the company had executed a one-off large order in FY12. While profitability for H1FY13 was higher than our expectation, initial costs incurred for Australian subsidiary and commissioning of new facilities will put pressure on profitability. Thejo’s capex plans continue to be on track and we expect the same to be completed by March 2013. We believe the benefits of capacity expansion and investments in its Australian subsidiary are likely to lead to faster revenue growth in FY14. We maintain SME Fundamental Grade of 5/5 for Thejo, indicating that its fundamentals are excellent relative to other SMEs in India.
Services business continues to drive strong growth- Thejo’s services business (mainly related to operation and maintenance of conveyor belts) increased 37% y-o-y. The unexecuted order book in services business comprised Rs 460 mn, which provides strong revenue visibility over the next three to six months. The products business (including exports) reported 5% y-o-y growth in volumes and 7% y-o-y growth in revenues. Exports declined 14% y-o-y as the company had executed a one-time large order for its client in Ghana in FY12. The management has indicated that it has received an order worth Rs 50 mn for ball mill lining replacement from the same client; the order is to be executed over H2FY13. Net sales increased 19% y-o-y to Rs 627 mn.
EBITDA margin expand due to lower trading sales and decline in raw material prices- EBITDA margin increased 228 bps y-o-y to 13.2% on account of y-o-y decline in raw material prices (natural and synthetic rubber) and lower sale of low-margin traded products. We expect the margin to be under pressure in H2FY13 owing to initial costs incurred for Australian subsidiary and commissioning of new facilities.
Capex plans on track- The debottlenecking of its existing facility and new infrastructure for rubber lining activities continue to be on track and is expected to be completed by March 2013. The setting up of the new polyurethane plant is complete and the company has purchased 25% of its required equipment for the R&D facility. Thejo plans to invest Rs 64.2 mn over FY13-14 in its Australian subsidiary Thejo Australia Pty Ltd, of which 50% is complete. We expect the benefits of these capex plans to accrue FY14 onwards.
Valuations: We maintain fair value of Rs 402 per share. We have used the discounted cash flow (DCF) method to value Thejo and arrived at a fair value of Rs 402 per share.
To read the full report click on the attachmentDisclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report. The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.
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