Lloyd Electric & Engineering Ltd - 178.00 Rs

Lloyd Electric and Engineering Ltd (LEEL) was incorporated in 1988 primarily as a backward integrated unit of Fedders Lloyd Corp, the leading group company to manufacture coils for air conditioners. Hence 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. Offlate, company has got itself forward integrated into lucrative business of contract manufacturing of window / split air conditioners for various multi national companies in India. Thus company is an OEM supplier to almost all AC manufacturers in India and its clientele includes Samsung, Electrolux, Carrier, Haier, Voltas, Blue Star, LG, Hitachi, Whirlpool, Diakin to name a few. Importantly, LEEL has also ventured into manufacturing of roof mounted packaged unit i.e. packaged AC 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. Presently, LEEL derives roughly 60% revenue from coils, 30% revenue from contract manufacturing of AC’s and balance 10% from railways.

Earlier, LEEL was operating thru two manufacturing facilities located at Bhiwadi in Rajasthan and Kala-Amb in Himachal Pradesh, but from last fiscal it commenced operation at its new plant in Dehradun (Uttaranchal) with an installed capacity of 2,00,000 coils & 2,00,000 airconditioners. Thus its total manufacturing capacity stands enhanced to 12,25,000 coils whereas assembling capacity got doubled to more than 4,00,000 ACs. The biggest positive for the company is that it enjoys a 10 year excise duty and income tax exemption at its Kala-Amb and Dehradun facilities and would be paying sales tax at a concessional rate. To expand its product range further, company is now diversifying to produce roll bond and frost free coils for refrigerators and has tied up with a Korean company, Hanyung Alcobis for the same. With this it would become the first manufacturer in India, as the entire requirements of these coils are generally met thru imports and that too mainly from Korea. Hence to maintain its future growth LEEL is in the process of setting up a Greenfield plant near JNTP port on Mumbai-Pune highway with an initial capacity to produce 2,00,000 frost-free refrigeration coils, 4,00,000 AC coil and 2,00,000 units of air conditioners. It has already acquired 25 acres land and is looking to start the plant by mid 2009. Meanwhile, 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 in India. Accordingly, company is actively pursuing Delhi Metro Rail Corporation (DMRC) Phase 1 extension and Phase 2, for the metro coach air conditioners and expects to get substantial orders in future. Besides company is also exploring the possibilities of export of coils and components for the new metros coming overseas.

To fund its expansion plan company been regularly raising capital thru equity route may it be GDR or preferential allotment of shares/warrants. After raising Rs 50 cr thru allotment of 40 lakh shares @ 125 Rs earlier, company has recently allotted 50 lakh warrants to be converted @ Rs 225 per share thereby making arrangement to get fund to the tune of Rs 100 cr in future. Further it is contemplating to raise Rs 200 cr thru QIB route which combine may lead to 40% equity dilution. However, in a continuing climate of economic buoyancy, the domestic market for Heating, Ventilation, Air-conditioning and Refrigeration industry (HVACR) is growing at a healthy pace. Secondly, with the increase in disposable income, change in lifestyle and easy availability of finance at low rate of interest has led to the sharp growth in air conditioner segment. Fundamentally, company is doing exceedingly well and has recorded 40% growth in topline as well as bottomline for H1FY08. In view of that it is expected to end FY08 with sales of Rs 650 cr and NP of Rs 58 cr i.e. EPS of Rs 19 on current equity of Rs 31 cr. However, frequent equity dilution may cap the upside potential of the share price. Still investors are recommended to buy at current levels with a price target of Rs 275 (60% appreciation) in 15 months.

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