Incorporated in 1980, Simplex Castings Ltd (SCL) belongs to well diversified Simplex group of Industries which has interests in Simplex Forging (in forging business), Simplex Engineering (Blast Furnace, Coke Oven projects etc), Signum Fire Pvt ltd (in preparing fire proof doors made of steel and timbers) etc. However, SCL is engaged in manufacturing of heavy engineering castings in various grades for industries like steel, rail, mining, cement, power and other engineering sectors. It produces various castings such as grey cast iron castings, S.G iron castings, stainless steel castings, steel castings, ingots, valve castings etc. It can make castings from 350 kg to 32000 kgs weight in single piece. It specializes in developing different casting for steel plants and also valve / cone castings for supplying the same to valve and pump manufacturers. Incidentally, company has been supplying casnub bogies, coco bogies & bolsters assemblies (used in railway wagons) to Indian railways for a long time. Apart from Indian Railways, all major steel companies including Tata Steel, Jindals, Sail, Essar, Bhushan etc are its clients. Besides, company also derives 15~20% of revenue by exporting its products to countries like Spain, France, Belgium, Egypt, Korea etc
SCL has two manufacturing plants, one in Bhillai and other in Raipur, both are present in iron ore rich state of Chattisgarh. The main raw material for company is steel, scrap, iron ore & sponge iron which are all available near to its location. Notably, it manufactures all types of castings at its plants, which have installed capacity of 15000 tons each. However the actual production depends upon the product mix and the size of the orders. Ironically, SCL can operate its plant at even 125 times of its installed capacity. To derisk its business model company is moving up the value chain and is venturing in to the machined castings. For that, it has imported machineries from Spain worth Rs 8 crore. This will improve the margins going forward and will also lead to addition of new clients which seek the machined components. Interestingly, due to volatility in input cost and to safe guard its profit margin, management has worked out a backward strategy of raw material pricing while coating a tender. This has of course restricted volume growth, but has given the company the margin of safety on execution of the orders. Meanwhile, it has bagged a prestigious order worth Rs 12 cr from Indian railways for supply of coco bogies and expects to get more such order in future. Currently it has a very healthy order book position of Rs 120 cr which includes export orders worth Rs 30 cr from its valued clients like Indu steel-France, Arcellor-Spain, Ingersoll Rand-Italy, Sandwik Asia-Pune, Al-Nasar-Egypt, Hyundai Corporation-Korea.
On the other hand, as it already manufactures valve casting, in near future it intends to forward integrate into valve manufacturing business, which is a very high margin business. Especially for this it has planned a capex of Rs 60~70 cr to be funded from debt and internal accruals. It also plans to venture into project execution and turnkey business of steel plants. So far it’s into manufacturing of huge castings, which are used to build and lay blast furnaces, coke oven plants, slag plots etc. But now it has started laying down and construction of such plants. It has already entered into collaboration with BHEL and one Chinese company and has even executed one such contract of Rs 2.5 crore of Bhillai Engineering Company and is undergoing another such contract with it. Simultaneously, it has bid for Indian Iron and Steel Company’s four such contracts, which is of Rs 80 crore each in size.
Fundamentally as well as financially company is doing quite well. For the nine months ending Dec’07, it recorded 10% growth in sales to Rs 106 cr but NP increased by 55% to Rs 5.40 cr due to better profit margin. Considering the massive expansions planned by all steel companies and increased spending by Indian Railways on infrastructure development coupled with strong economic growth and company’s diversification/integration plan, the future prospect of SCL looks very encouraging. For FY08 it is estimated to clock a turnover of Rs 145~150 cr and PAT of Rs 8 cr i.e. EPS of Rs 13 Rs on equity of Rs 6 cr. For FY09 SCL can post an EPS of Rs 16~17. Hence, investors are recommended to buy at current levels as at a reasonable discounting by 8x times against FY09 earnings scrip has the potential to touch Rs 130 (70% appreciation) in 12~15 months time.
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