Lanco Industries to take a U turn after bottoming out last year

Lanco Industries producer of Ductile Iron ( DI ),the preferred pipes for drinking water infrastructure is the only fully backward integrated producer of DI Pipes. It has capacity of 90,000 tonnes of spun DI Pipes, 150,000 tonnes of Pig Iron , 90,000 tonnes of Slag Cement,and 51,000 tonnes of Castings.Besides these it also owns captive Iron Ore Mines and that way its a fully backward integrated DI Pipes producer in India.

Lanco Industries Ltd has informed BSE that the Board of Directors of the Company at its meeting held on July 28, 2014, inter alia, has approved capex plan of Rs.325 crores to set up a Small Dia Pipe (SDP) Plant of 1,00,000 TPA for sizes ranging 100mm to 300mm dia with increased capacity of Blast Furnace and other facilities.

The Board has also approved the change of name of the Company from LANCO INDUSTRIES LIMITED to SRIKALAHASTI PIPES LIMITED which is subject to shareholder’s approval in general meeting and other statutory approval.

Financial Results
View in (Million) Prior Period
(in Cr.) 2014 2013 2012 2011 2010
Income Statement
Revenue 989.40 863.89 787.00 728.10 691.30
Other Income 7.24 10.02 8.42
Total Income 996.64 873.91 795.42 728.10 691.30
Expenditure -872.38 -812.64 -721.74 -638.87 -564.76
Interest -54.90 -60.42 -57.86 -14.67 -20.62
PBDT 69.36 0.86 15.83 74.56 105.92
Depreciation -27.94 -22.18 -19.99 -18.72 -17.95
PBT 41.42 -21.33 -4.17 55.85 87.98
Tax -2.72 8.23 0.22 -13.82 -30.04
Net Profit 38.70 -13.10 -3.95 42.03 57.94
Equity 39.76 39.76 39.76 39.76 39.76
EPS 9.73 -3.29 -0.99 10.57 14.57
CEPS 16.76 2.29 4.03 15.28 19.08
OPM % 12.56 7.09 9.36 12.26 18.30
NPM % 3.91 -1.52 -0.50 5.77 8.38
Detailed Detailed Detailed Detailed Detailed

Company is likely to make Net profit of Rs. 60 crores for FY15 , a 50 % jump over FY14 ..This will give an EPS of Rs. 15 for the year ending 31st March 2015..

At Rs. 50 share seems to be undervalued  and is available at P/E of  just 3.5 based on its future FY 15 PAT of Rs. 60  crores or an EPS of RS.15 .All other producers of DI Pipes are quoting at P/E of 10+  including its parent Electro Steel Castings. Demand for DI Pipes is expected to grow at more than 30 % as Govt. has set aside Rs. 75,000 crores for Drinking Water Infrastructure because of growing urbanisation and inadequate existing  infrastructure. Besides domestic demand there is growing overseas demand too for DI ppes. Most important  for Lanco is its parentage in Electrosteel Castings and there is a distinct possibility of Lanco merging with its parent. In that scenario the share will be re-rated and will quote at P/E of about 10.

Buy is recommended on declines near to Rs. 45-50, as the share has appreciated by 25% during the last 2 months

Note : Lanco Industries was recommended by us in April 2007 and again in 2010 at Rs. 35

This report has been prepared solely for information purposes and the information contained herein may not be deemed to be an investment advice. Such information is impersonal and not tailored to the investment needs of any specific person. The information contained herein is not a complete analysis of every material fact representing any company, industry or security. The views expressed may change. While the information contained herein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments and should consult with and rely upon their own advisors whether and how to use such information in making any investment decision

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