Gujarat Apollo Industries Ltd - Rs 56.00
Established in 1972, Gujarat Apollo Industries Limited (GAIL), flagship company of Gujarat based Apollo Group is the undisputed leader and India's No.1 manufacturer of road construction & maintenance equipment. With nearly four decade of experience in the design, manufacturing and after sales support of equipments, the group today literally offers the entire range of equipment required by bituminous road building industry. Company has expertise in manufacturing asphalt plants (batch mix plants, drum mix & mobile drum mix plants), soil stabilization plants, indirect heating equipment, sensor paver finisher, bitumen sprayer, rollers, kerb paver, road marking machines and road maintenance equipments like milling machines and recycling machines. Presently, company derives 45% of the revenue from mobile equipments such as pavers & finishers and the balance 55% comes from plants such as asphalt mix plant etc. Ironically, GAIL controls more than 60% of the market in the product segments in which it operates, with over 1,400 customers and an equipment population of around 3,500 units.
GAIL’s state-of-the-art manufacturing plant is located in Gujarat and caters to all three categories viz. government & semi-government agencies, private corporate customers and small contractors. Besides, it has a subsidiary called Apollo Earthmovers Ltd which is also engaged in same line of business but targets road equipment market for rural roads funded through PMGSY programme etc where the machinery requirement is of not highly sophisticated/technology oriented and of also lower capacity. Thus the market positioning of parent company and its subsidiary are different both in terms of product offerings and market catering with former focusing upper end of market and the later at lower end. Secondly due to constant thrust on export, GAIL has achieved significant market share in Saudi Arabia, African countries, Afganistan, Australia, Bangladesh and Sri Lanka. Infact, presently exports contribute nearly 35% of total revenue. In order to de-risk its revenue model, last year GAIL entered into a technical collaboration agreement with a German company to manufacture jaw crushers, impact crushers, wheeled/crawler mounted & skid mounted crushing plants, grizzly feeders, screens, conveyors, etc. This segment of products has larger market size with relatively less competition in organized sector. Hence company intends to become a significant player in this segment and has ambitious future growth plans.
Although there are apprehensions regarding slowdown in construction activities due to recession and lower GDP growth rate but GAIL is expected to be least affected due to its association with road construction activities only. The projects under pipeline in road sector are quite strong from both NHAI stable and State Highways side. The Union government is already executing massive road construction projects, with the National Highway Development Program building the north-south and east-west corridors and the Golden Quadrangle Project connecting major cities. Besides, the Eleventh plan, entails an investment of gigantic Rs 200,000 cr in road infrastructure which converts into huge opportunity for road construction equipment manufacturer like GAIL. To move in tandem with today’s world, company has been regularly implementing capex and has further planned to invest Rs 18~20 cr each for next 3~4 years. In fact it is building a brand new factory near Ahmedabad specifically for manufacturing of compaction equipment and is expected to begin production in few months.
Last fiscal i.e. for FY08 GAIL reported bumper profit of Rs 37 cr as it got an extraordinary pre-tax gain of Rs 16 cr on divestment of 49% equity stake in Johnson Screens (India) Limited, a joint venture company to the foreign partner to enable them to have 100% control of that business. Whereas in the current fiscal, company has recorded a modest growth of 10% in topline as well as bottomline for H1FY09. Recently company has given 1:2 bonus thereby making the record of declaring 3 times bonus in the last 4 years. It may end the current year with sales of Rs 200 cr and net profit of Rs 23 cr. This works out to an EPS of Rs 15 on expanded equity of Rs 15.75 cr. Importantly, GAIL’s subsidiaries are also doing well and churning out respectable profit. In the current year company took strategic stake in another group company called Apollo Construction Equipment pvt Ltd which will be eventually made a subsidiary in due course. Although no official consolidated figures are available, still it is roughly estimated to clock a turnover of Rs 300 cr and PAT of Rs 30~32 cr on a consolidated basis for FY09. That means the scrip is current trading a P/E ratio of less than 3x times considering the consolidated EPS of Rs 19. Due to adverse market condition share price has become one fourth from its high in May’08. Investors can buy at current levels as share price can double in 15~18 months.
GAIL’s state-of-the-art manufacturing plant is located in Gujarat and caters to all three categories viz. government & semi-government agencies, private corporate customers and small contractors. Besides, it has a subsidiary called Apollo Earthmovers Ltd which is also engaged in same line of business but targets road equipment market for rural roads funded through PMGSY programme etc where the machinery requirement is of not highly sophisticated/technology oriented and of also lower capacity. Thus the market positioning of parent company and its subsidiary are different both in terms of product offerings and market catering with former focusing upper end of market and the later at lower end. Secondly due to constant thrust on export, GAIL has achieved significant market share in Saudi Arabia, African countries, Afganistan, Australia, Bangladesh and Sri Lanka. Infact, presently exports contribute nearly 35% of total revenue. In order to de-risk its revenue model, last year GAIL entered into a technical collaboration agreement with a German company to manufacture jaw crushers, impact crushers, wheeled/crawler mounted & skid mounted crushing plants, grizzly feeders, screens, conveyors, etc. This segment of products has larger market size with relatively less competition in organized sector. Hence company intends to become a significant player in this segment and has ambitious future growth plans.
Although there are apprehensions regarding slowdown in construction activities due to recession and lower GDP growth rate but GAIL is expected to be least affected due to its association with road construction activities only. The projects under pipeline in road sector are quite strong from both NHAI stable and State Highways side. The Union government is already executing massive road construction projects, with the National Highway Development Program building the north-south and east-west corridors and the Golden Quadrangle Project connecting major cities. Besides, the Eleventh plan, entails an investment of gigantic Rs 200,000 cr in road infrastructure which converts into huge opportunity for road construction equipment manufacturer like GAIL. To move in tandem with today’s world, company has been regularly implementing capex and has further planned to invest Rs 18~20 cr each for next 3~4 years. In fact it is building a brand new factory near Ahmedabad specifically for manufacturing of compaction equipment and is expected to begin production in few months.
Last fiscal i.e. for FY08 GAIL reported bumper profit of Rs 37 cr as it got an extraordinary pre-tax gain of Rs 16 cr on divestment of 49% equity stake in Johnson Screens (India) Limited, a joint venture company to the foreign partner to enable them to have 100% control of that business. Whereas in the current fiscal, company has recorded a modest growth of 10% in topline as well as bottomline for H1FY09. Recently company has given 1:2 bonus thereby making the record of declaring 3 times bonus in the last 4 years. It may end the current year with sales of Rs 200 cr and net profit of Rs 23 cr. This works out to an EPS of Rs 15 on expanded equity of Rs 15.75 cr. Importantly, GAIL’s subsidiaries are also doing well and churning out respectable profit. In the current year company took strategic stake in another group company called Apollo Construction Equipment pvt Ltd which will be eventually made a subsidiary in due course. Although no official consolidated figures are available, still it is roughly estimated to clock a turnover of Rs 300 cr and PAT of Rs 30~32 cr on a consolidated basis for FY09. That means the scrip is current trading a P/E ratio of less than 3x times considering the consolidated EPS of Rs 19. Due to adverse market condition share price has become one fourth from its high in May’08. Investors can buy at current levels as share price can double in 15~18 months.
1 comment:
You have a nice blog
S. P. Enterprise: Asphalt Plant, Asphalt Plants, Asphalt Mixing Plant,Asphalt Pavers, Bitumen Sprayer.
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