Lloyd Electric & Engineering Ltd - Rs 18.00

Incorporated in 1988, Lloyd Electric and Engineering Ltd (LEEL) was primarily setup as a backward integrated unit of Fedders Lloyd Corp, the leading group company to manufacture coils for air conditioners. Since then it specializes in the custom design and manufacture of heating and cooling coils including 'U' bend and return bend tubes for heat exchanger coils, system tubing, header line etc and sheet metal items for air-conditioning and refrigeration applications. Over the year it has emerged as India’s largest manufacturer of evaporator and condenser (E&C) coils with around 60% market share. E&C coils are critical components in AC manufacturing next only to the compressor and account for approximately 20% of the cost of manufacture. Of late, company has got itself forward integrated into lucrative business of contract manufacturing of window/split air conditioners for various multinational companies in India. Thus it has become an OEM supplier to almost all AC manufacturers in India and its clientele includes Samsung, Electrolux, Carrier, Haier, Voltas, Blue Star, LG, Hitachi, Onida, Symphony, National, Whirlpool, Diakin etc. It even provides customized AC solutions for institutional clients like railways, defence, telecom etc apart from undertaking airconditioning services for luxury buses including Volvo etc. As of now, LEEL derives roughly 60% revenue from coils, 30% revenue from contract manufacturing of AC’s and balance 10% from railways.
Presently, LEEL is operating thru three manufacturing facilities located at Bhiwadi (Rajasthan), Kala-Amb (Himachal Pradesh) and a new plant in Dehradun (Uttaranchal) with an total capacity to manufacture 14,00,000 coils & assemble 4,00,000 air conditioners. It even boasts of having technology advantage to manufacture 400 different types of coils. But the biggest positive for the company is that it’s KalaAmb and Dehradun facilities are located in tax free zones thereby giving an edge to the company over its peers. For Indian Railways - one of its major customer, LEEL manufactures roof mounted packaged AC unit for railway coaches on turnkey basis which includes designing, manufacturing, supplying, installation and maintenance. Hence it has set up service station all around India like at New Delhi, Mumbai, Chennai, Bangalore, Hyderabad, Lucknow, Jaipur, Guwahati and Culcutta specially for maintaining the AC package units installed on the railway coaches.

To maintain its growth momentum, LEEL has signed a MoU with Air International Transit Pty Limited, an Australia-based company for designing, manufacturing and supplying of AC package units to Metro Rail Corporation in India which is adding up 800 new coaches to its fold leading to sizable business opportunity. LEEL is already executing orders for Delhi metro and considering the first mover advantage expects to get a substantial order from the upcoming metro project in Mumbai, Bangalore & Hyderabad. With this tie up, company is also exploring the export potential in air-conditioning of Metro Rail coaches in developed countries. Towards its mission to emerge as world’s No 1 coil manufacturer and increase its global presence, LEEL in May 2008 acquired a company called Luvata in Czechoslovakia, which is one of the top five leading manufacturers of coils serving the heating, ventilation, air conditioning and refrigeration (HVACR) industry in Europe with market share of 5% in free coil market i.e. non captive segment. This acquisition is expected to bring in significant business synergies in terms of cost efficiencies, technology absorption etc. In line with its goal to increase its global presence, LEEL has recently incorporated a wholly owned subsidiary namely ´Lloyd Electric FZE´ as a free trade zone establishment in RAK, United Arab Emirates.

However, the global turmoil, liquidity crunch, slowing down of world economy with most developed countries going into recession has hit all the industries across the world. And LEEL is no exception. Secondly it also has to pay for bad timing decision of making international acquisition of Luvata Czech. With plunging topline and rising interest cost, company is certainly going thru a bad phase domestically as well as internationally. Sarcastically, LEEL has neither disclosed the acquisition cost nor it is making the Luvata’s quarterly financial statement public. Else one could have evaluated the impact on the financial health of the company. No wonder, due to these uncertainties share price of the company has been decimated to sub Rs 20 levels. The company which earned net profit of Rs 55 cr from core business operation last year is now available for Rs 55 cr. Financially, LEEL’s sales fell by 15% to Rs 411 cr and PAT declined by 55% to Rs 20 cr for nine months ending Dec’08. Although the retail demand for air conditioners may remain low in the current calendar year as well, but the sharp fall in copper, steel, aluminium and other metal prices, increased government spending on railways & massive investment by Metro Rail are few of the positive factors for the company. Also not to forget, with extremely low penetration, there is tremendous demand potential for air conditioners in India over the long run. To fund its growth plan LEEL has issued 50 lakh convertible warrants @ Rs 225 per warrant. Considering the current market price, it’s but obvious that warrant holders will let it lapse in March 2009. On a standalone basis it may end FY09 with sales of Rs 500 cr and PAT of Rs 20 cr i.e. EPS of Rs 6 on current equity of Rs 31 cr. With reserves of over Rs 300 cr, Gross block of Rs 224 cr, & debt/equity ratio of 0.45x, it seems all the negatives have been factored in the share price. However, scrip may witness some panic selling as around 23 FII’s including Morgan Stanley, Bank of New York etc are still holding 25% stake in the company. Long term investors can safely accumulate this scrip during panic times to get a multibagger return in 2~3 years.

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