Madhuchanda Dey Moneycontrol Research
Some quality stocks too have taken a beating in the recent market correction. From a medium term investment horizon, it may be worth looking at some of these slow-and-steady investment ideas. We have selected two such companies which we feel are available at attractive valuations, given their robust fundamentals.
Gandhi Special Tubes (Price: Rs 383, M Cap: Rs 561 crore) is a manufacturer of small diameter seamless and welded steel tubes, used in automotive, hydraulics, refrigeration (condenser tubes) and other engineering services. The company commenced operations around 30 years ago at its Halol (Gujarat) plant, set up in technical collaboration with Benteler (Germany).
In the automotive space, the company’s products are used as fuel injection tubes in the M&HCV (medium & heavy commercial vehicles) segment. Gandhi Special Tubes is an OEM (original equipment manufacturer) approved tier-2 supplier of seamless tubes, which are eventually used by Tata Motors, Ashok Leyland and M&M amongst others. Seamless tubes contribute a good chunk of the total revenues, and the growth is dependent on the performance of the M&HCV segment domestically.
In hydraulics, the company’s products are used in material (bulk) handling equipment for construction and mining. In the hydraulics segment, the clientele includes Larsen & Toubro, BEML, Bhel and JCB amongst others.
Welded steel tubes find application in refrigeration and automobile (fuel lines, oil lines & air brake lines) segments.
The company also manufactures cold formed tube nuts for fuel injection tube assemblies, hydraulic & other tube assemblies, which act as an auxiliary unit for its seamless tube segment.
The company has a lean, debt free balance sheet with net cash & investments of close to Rs 96 crore. Even after the recent share buyback, the cash position continues to be robust, thereby ensuring that the generous dividend policy can be maintained.
With surplus capacity on stream, the company is well positioned to capitalise on upturn in segments like construction equipment and automobile. An upswing in commodity prices is a potential an investment risk.
Promoters’ stake continues to remain high at 73.3% post the buyback. Finally, the valuation at 14XFY19P earnings look reasonable in the context of healthy financials and a bullish outlook on the user market.
Tiger Logistics (price: Rs 196, M Cap: Rs 210 crore) is a small Third Party Logistics player (3PL). Its core business is to facilitate movement of goods in coordination with various agencies across the world. It has an asset-light model and most of the investments are in working capital.
A large part of its business (~55%) comes from its multimodal operations (the movement of goods through multiple modes of transport under a single contract). It has a Multimodal Transport Operator license, an Authorized Economic Operator license and a Custom House Agent License.
The company has come a long way from handling 10,000 TEUs in 2006 to 73185 TEUs in 2016.
The company has diversified its customer base, with the top 5 clients now contributing less than 20% of total revenue, compared to around 50% in 2013. In addition, the company has also been able to attract business from new customers and has opened offices in Singapore and Dubai.
The company caters to verticals like Projects & Heavy Lifts, Automotive (2W and 4W), Yarn & Textiles, Rice & Wheat, Consumer Durables, Cold Chain logistics and Defense.
Tiger predominantly caters to export logistics. Hence there is untapped potential to grow in in import logistics and domestic logistics where it doesn’t have a major presence currently.
Even in export logistics there is a lot of scope of expansion in new geographies. The company has forayed into defence logistics which is a high margin business. The management is focusing on domestic logistics by leveraging its existing infrastructure and network to enter the lucrative segment of Less than Container Load (LCL) segment.
The Indian logistics market is expected to be worth around US $160 bn by 2020 and has potential for strong growth. Initiatives like Make in India, revival in the economy, roll out of infrastructure and Dedicated Freight Corridors (DFC), development of ports, investment in road, rail infrastructure and exponential growth in E-Commerce are the key future drivers.
The implementation of GST will result in huge reformation of warehouses, creating new regional warehouses in key locations based on operational and logistics efficiency and further employing 3PL companies to manage their overall distribution and supply chains.
Tiger has a lean balance sheet with a debt to equity ratio of 0.14X. The stock trades at 18X FY19P earnings.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
