Lloyd Electric & Engineering Ltd - Rs 25.00

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 for an undisclosed sum is expected to bring in significant business synergies in terms of cost efficiencies, technology absorption etc. In line with its expansion & modernization plan, LEEL has planned a capex of Rs 20 cr at Luvata for the current fiscal.

With the increase in disposable income, change in lifestyle and drastic fall in prices, demand for air conditioners both in retail & institutional segment is rising at healthy pace. Secondly with increased government spending on railways, metro rail expansion, growing contract manufacturing business and huge export potential, the future prospect of LEEL looks promising. On the other hand, although the recent fall in copper, aluminium and other metal prices are positive for the company, but considering the LEEL’s cost plus margins model, it may not improve its profit margin. Financially, to fund its growth plan LEEL has issued 50 lakh convertible warrants @ Rs 225 per warrant. However due to current market sentiment, it’s but obvious that warrant holders will not opt for conversion. Meanwhile for H1FY09, sales drop by 5% to Rs 309 cr but PAT fell sharply by 40% to Rs 17.90 cr. Accordingly on a standalone basis it may clock a turnover of Rs 650 cr and NP of Rs 30 for FY09 leading to an EPS of Rs 10 on current equity of Rs 31 cr. As company hasn’t made the Luvata quarterly result public, its difficult to say whether consolidated nos are better or worst against standalone. And since marketmen expect the Luvata acquisition to be a drag on LEEL’s financial its share price has been hammered down mercilessly to 10% from a high of Rs 220 in Jan’08. Although, in short term LEEL may take a hit of higher interest cost due to Luvata acquisition but in long term it will prove beneficial for the company. Investors are strongly recommended to buy at current levels as it can turn out to be a multibagger if held for 3~4 years.

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