International Combustion (India) Ltd 140.00

Established in 1936, International Combustion India Ltd (ICIL) is recognized to be a leading manufacturer of sophisticated plant and machinery for core sector industries such as mining, steel, cement, petrochemical, construction, sugar, power, textile, paper, rubber, pharma, chemicals etc. From a modest beginning as a trading house, ICIL today boasts of manufacturing specialized range of engineering products under technical collaboration and license agreement from various global leaders. It has an enviable list of clientele including corporate giants like Tata, Essar, Jindal, Aditya Birla, Ashok Leyland, SAIL, NALCO, Atlas Copco, NTPC, HLL, Nirma, P&G, ABB, Alstom, Bajaj Hindustan, LMW, ITC, TNPL etc. According to its product profile, company has broadly segmented its business model into following two divisions:-

I. Heavy Engineering Division :
This is the main division as nearly 80% of total revenue comes from it whereas it contributes more than 95% of earnings. This division has been further divided into following three categories:-

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  Vibrating equipments: ICIL manufactures and markets a wide range of mechanical and electro-magnetic vibrating screens, feeders, sizers, & conveyors which can handle all types of bulk solids, whether large lumps or very fine grains, wet or dry, or whether abrasive such as scrap, flux and sinter. As accessories it also makes exciters, DC brake unit & monitoring system for vibrating machines.

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  Bulk Material Handling: Under this category, ICIL deals in spiralling belt elevators, scooping belt conveyers, girdle pocket elevators, apron feeder, mining haulages etc. as an intelligent solutions to suit even difficult to handle materials.

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  Grinding, Classfication and Drying system: ICIL offers complete grinding mill systems designed to pulverise and classify various kinds of material, including non-metallic minerals, fertilisers, chemicals and many other manufactured products. Importantly, it markets ‘Raymond” American brand roller mill, pulverisers, grinding mills, mechanical air separators and flash drying system, which can reduce many products by 95~98% or refine them below 10 microns

II. Gear Motors & Gear Box Division
Under license from Danfoss Bauer, Germany, ICIL offers a comprehensive range of geared motors, gear boxes and electric motors manufactured on specially designed inter-linked CNC production lines. It also exports these products to neighboring markets including Iran and Sri Lanka. Besides company has been chosen as the outsourcing partner by Danfoss Bauer itself and has even started exporting cast iron machine parts to them.

Currently, ICIL is having three fully equipped manufacturing facilities spread across Calcutta, Nagpur and Aurangabad. To have a cutting edge technology for manufacturing premium quality equipment, ICIL has made several tie-ups with international majors like Danfoss Bauer(Germany), Mogensen(Germany), IMS Engineering(South Africa), Alstom Power(USA), Gummi Kuper (Germany) and Tredomen Eng (UK) for each product group. It has also entered into a license agreement with Ecutec(Spain) to manufacture microfine classifiers. Ironically, all the players in user industries are ramping up their capacities which translates into a huge opportunity for company's products. To meet the increasing demand, an expansion programme has been initiated by the company for augmenting the manufacturing capacity of the gear box/geared motor division. It is also upgrading the manufacturing capacity of the Heavy Engineering Division. On the back of its wide product range and high engineering skill, ICIL is contemplating to enter the lucrative turnkey project segment in future.

Fundamentally, ICIL is on a strong footing with an reserves of around Rs 50 cr i.e. book value of nearly Rs 220 as on March 2009. Importantly it’s a debt free company and has never even raised any significant money thru equity route. In other words, there is no major equity dilution since 1995. It has been funding its capex plan thru internal accrual only. Being a seven decade old company, it has a conservative approach and believes in slow but consistent growth. In the last five years, it has recorded a topline CAGR of 30% whereas bottomline has grown at a CAGR of 140%. Besides it has an impressive ROCE of 40% and ROE of 25% on a very tiny equity of Rs 2.40 cr. On the back of poor performance for the Dec’08 quarter, it has posted marginal growth in sales to Rs 71 cr and 20% decline in net profit to Rs 6.50 for the first nine months. Accordingly for entire FY09 it is estimated to clock a turnover of Rs 95 cr and PAT of Rs 8.50 cr leading to an EPS of Rs 35 on current equity. Although management can declare 50% dividend but on a conservative note 35% dividend is expected for FY09. ICL is expected to benefit from the sharp fall in metal prices being its main raw material. It has the potential to earn a profit of more than Rs 12 cr for FY10 i.e. EPS of Rs 50. Hence with expected CEPS of more than Rs 60, and EV/EBIDTA of less than 2x, company is available fairly cheap at current market cap of merely Rs 35 cr. Ironically, scrip which crossed Rs 900 in Dec’07 tumbled down to as low as Rs 80 in March’09. However now it has marginally recovered to Rs 140 in a very short span. So investors are strongly recommended to accumulate it at sharp declines for a price target of Rs 280 (i.e. 100% appreciation) in 12~15 months. Moreover its a strong bonus candidate as well.

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