Gontermann Peipers (India) Ltd - Rs.48.00
Established in 1966, Gontermann-Peipers (India) Ltd. (GPIL) was promoted in technical and financial collaboration with Gontermann-Peipers GmbH-Germany, a front-ranker in the manufacture of rolls since 1825. In 1981, the company was taken over by the Ispat Group and has since grown by leaps and bounds. It is the leading producer of cast iron rolls and forged rolls commanding a major share of the domestic market. Cast rolls find application in making of hot rolled steel while forged rolls are used for cold rolled steel. Ironically, GPIL is amongst top 10 roll manufacturers globally and only company in South-East Asia manufacturing rolls for both cold and hot rolled mill under single roof. Segment wise, company derives three fourth of its sales from cast roll while balance one fourth comes from forge rolls. On the export front, its products are widely appreciated in Japan, USA, Canada, China, South Africa, Taiwan, South Korea, Thailand, Indonesia and 25 other countries. Hence company has been able to generate more than 50% of the revenue from exports.
GPIL’s plant is located in West Bengal with an installed capacity of 12,000 MT of cast rolls and 3300 MT of sforged rolls. Incidentally, Tayo Roll is the only competitor in India. But as India's roll production capacity is more than its captive demand, GPIL is focusing on the international market and is constantly exploring untapped area to ramp up export volume. It has been successful in establishing new export market in Malaysia, Italy, spain and other European countries. But most importantly to mitigate the rising input cost, GPIL has taken up necessary steps and introduced the price variation clause in pricing policy in new business dealings wherever possible. Considering the future trend of the business, GPIL has given special thrust to new product development i.e. enhanced carbide rolls in ICDP (Indefinite Chill Double Poured) segment. The R&D Center of the company has taken up adequate steps to develop the product indigenously. These are premium rolls with higher profit margin and also known as Hi-Speed Rolls and Semi-Hi-Speed Rolls. On the other hand, GPIL has drawn up an expansion-cum-modernization plan of Rs 40 cr to enhance production capacity and produce value added cast rolls for the steel industry. This capex is expected to complete by end of this calendar year and post its commencement; company will have an annual production capacity of about 18300 MT finished rolls. Notably, GPIL is among the very companies to have taken modern management initiatives like TQM, Six Sigma, TPM, SCM, ERM, ABC, PMS, JIT etc.
Rolls’ being integral to steel production, the demand is directly linked to the growth of the steel industry. With reputed global steel manufacturers planning entry into the Indian steel market as well as aggressive expansion by domestic steel majors, the rise in the demand for rolls is fairly evident. For FY08 it registered 20% growth in sales to Rs 174 cr whereas net profit improved by 25% to Rs 15 cr thereby posting an EPS of Rs 11 on equity of Rs 13.90 cr. It declared 15% dividend against 10% last year. However for Q1FY09, it reported disappointing nos as its PAT declined by nearly 15% to Rs 3.20 cr. Accordingly for FY09 it is expected to maintain its bottomline to Rs 15 cr on sales of Rs 185 cr. This again translates into EPS of Rs 11 on current equity. Hence at a P/E ratio of less than 5x times scrip is trading reasonably cheap at an EV of Rs 125 cr which is even less than its gross block of Rs 178 cr. Its estimated EV/EBIDTA and Market Cap / Sales for FY09 are also very low at 3.5x and 0.35 times respectively. As the scrip has corrected 60% from its high and trading at 52W low levels, investors are strongly recommended to buy at current level with a price target of Rs 75 in 9~12 months.
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