From:
Arun the Stock Guru -Stocks,Tr
Stock tip:-
Scripscan:Fluidomat Ltd
Bse code:522017
Cmp:131rs
Target:195rs
Return percentage:50%
Duration:9-12 months
Quote:It was very difficult to dig about this company as management always been very very reluctant to speak.Thanks to my analyst buddies Keshav and Saurav for their inputs and research notes which helped me in getting aware of the most about the company.
Business:Fluidomat Ltd. makes Fluid Couplings.Google up to know what a fluid coupling is all about.Fluid Coupling is a Power Transmission Product.It is a Capital Good & not a consumable.Fluidomat has supplied more than 900 Scoop Control Couplings and several thousand constant fill fluid couplings on variety of applications in all sectors of industry including Coal base Power Plants, Steel, Cement, Paper, Chemical & fertilizer industry, Petrochemical Industry,Underground & Open Pit Coal and Mines, Harbor Handling and Nuclear Power Generation Plants in India and Abroad.Around 75% of the Revenues of the company are from the Power Sector.Sales growth of the company is dependent upon the Capex in these industries.
Market Size:Around 230crs in India and several times more internationally.Huge export potential for the company.Main thrust is on the Domestic Market, though the co. has expectations in Australia, Indonesia, Malaysia & Brazil(from the mining sector). The company has appointed dealers in these geographies.
Clients:ABB, BHEL, Braithwaite, Burn Standard, CIMMCO, Chemical Construction, DEMACH, DCIPS, ELECON, EPIL, FFE, Fuller KCP, Flakt, Flender, HEC, HDOL, HSML, INDURE, Krupp, Kirloskar, Kraft Engg., L&T, MAMC, MBE, Metso, MECON, Naveen, Oilex, Penwalt, Promac, Reitz, Sayaji Iron, Techpro,Thermax, TLT, TRF, Walchandnagar Industries, Warman etc.
Approvals from the Consultants:Fluidomat Fluid Couplings are approved by all leading industries and consultants in the country. The consultants include ACC, BHEL, Birla Tech Services, DCPL, Desin, HOWE India, Holtech, Jacobs, MECON, MN Dastur, NTPC, Tata Consultants,Tata Projects, Samsung, Doosan (Korea), Hyundai (Korea), Alstom (France), Sulzer (Germany) etc.Its also got a tie up with flow serve (Spanish company).They too have requirement for these couplings.
Price Range of company products = Rs.12,000/- to Rs.80 lakhs.
Competitors:Premium Energy Transmission Ltd., Elecon Engg. Ltd. & Voith (German). Apart from Voith,all others have rented tech.Main competition is from voith but with time I feel fluidomat would be able to beat voith comfortably.Voith’s pricing is 3 to 10X of fluidomat for same products.
Service cycle:FCs can last for 25-30 years also,typical replacement cycle is 10-12 years.In government departments specific budgets are allocated,hence they tend to replace their couplings earlier at 5-6 years as if these budgets are not used they are extinguished.
Points to look for:-
1)There is no unorganised sector in Fluid Couplings due to the hitech nature of the product.Also Fluid Couplings are very crucial products and reliably is a big factor. If it fails then the whole plant comes to a standstill.
2)The company does not require much capex.Land and building are excess.It can grow to Rs80-100 Cr turnover by adding only CNC machines.Capex could 1-2 Cr per annum.The company has started manufacturing FCs for fans used in boilers. It is now supplying the same to BHEL. Voith is the only competitor in this segment. The company entered into this segment three years ago based on indigenious R&D.
3)Fluidomat has also concluded designs for less than 110 MW boilers.It will enter this market soon.Working capital requirement for company's business is 3-4 months.Cycle is long as until the entire order is ready inspections don’t start(Debtor Days thus being 100).The company does not face issues on account of bad debtors as it supplies very critical equipment.
4)The company has started supplying FCs to NTPC also in the last year.Here again voith was the competition.Voith used to charge 4 Cr for one coupling which the company is supplying for 45 lakhs.In Jan 15 these couplings would complete one year of functioning.If the operation is glitch free.The company will be automatically approved for all future orders of NTPC.
5)The company is vertically integrated.It has its own foundry and fabrication facilities.The company has got cash and bank balance of 10crs as on date.Thats more than 20rs per share.Its a debt free counter.Company paid dividend of 2.75rs for the fiscal.Management has hiked their stake from 25% odd to 53% in the last few years.
6)Fluidomat has increased the prices of its fluid couplings from 70000rs in fy06 to over 100000rs in fy13-14.It generated 5crs FCF last fiscal,toppled that with a return on equity of 30%+.This is one heck of a monopoly company.When you get a company which can increase the prices of its products without loosing its market share and then you talk about 30% ROE,You are really on something.
7)In case the economy starts recovering which it should as now the BJP guys are at the helms.Fluidomat can do a turnover of Rs50 Cr in two years.If it receives incremental order from Petronas.Turnover could increase to Rs100 Cr in 2 years.If the economy does not recover it can sustain its turnover at 30-35 Cr based on replacement demand and through its spare parts sales.Spare parts contribute nearly 40-45% of its revenues.
Latest update/My latest interaction with the management:As per the words of Pramod jain,"Getting an order is bit difficult because of our size and inexperience.For one ntpc tender we bidded for 22 lakhs vs voith's 2.7crs,yet the order went to voith.But we are hopeful of bagging future NTPC orders.As we grow, more orders will flow to the company".At the present capacity they can achieve a turnover of 65-70 crores.There are several developments going on but any of them could be a big one.A single order can change the fortunes of the company big time.Product is very crucial and its significance can be seen by this example-one company which had never used couplings - ordered fluidomat couplings for the first time.Fluidomat was expecting payback to be around 4-5 years but it happened before end of first year.Competition is tough with voith but they are gradually taking over businesses of others like elecon.Elecon used to outsource its requirement to fluidomat then it started copying fluidomat products and began supplying but last year they saw some rejections.
Consistency:Revenues in the last 11 years(2003-04 to 2013-14) increased from 5crs to 27crs.PAT has jumped from a mere 12 lakh to 5.7crs.
Conclusion:The promoters have no business interests except Fluidomat.No inter dealings and thus strong influence on the owned listed company.Company is getting lot of enquiries from both the domestic as well as the international markets.A single big order(there are talks of a 50crs order from Petronas) can change the fortunes of the company as mentioned earlier.The company is expected to grow 25-30% on bottomline for the coming couple of years.Revenues are bit difficult to predict as of now.Assuming it grows with a 30% CAGR in bottomline,the company would come end fy15-16 with PAT of 9.6crs.Thats 19 odd rs EPS for you.So assigning a PE multiple of 10x for fy16,I arrive at the target price of 195rs. Company is an amazing long term buy.
btw:I have recommended Fluidomat earlier at 68rs.But the story is too good and the scrip deserves much bigger levels than what its quoting at present.
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