Walchandnagar Industries Limited

Walchandnagar Industries Limited is engaged in heavy engineering, which includes engineering, fabrication and manufacturing of machinery for sugar plants, cement plants and boilers, heavy duty gears, mineral processing, defence and nuclear power business; foundry and machine shop-manufacturing of cast iron (CI) and spheroidal graphite iron (SGI) castings required by various industries and machining of components, and other non-reportable segment, includes units manufacturing pressure and temperature gauges and Infotech Services.

Total Revenues in FY10 were Rs.692 crores and PAT of Rs.22.2 crores. During Q2FY11 total revenues were Rs.320 crores and PAT of Rs.10.1 crores. One should not be surprised if the company churns revenues in excess of Rs.750 crores in FY11. EBIT Margings range between 4.5 to 9 per cent and PAT margings are around 3 to 5 per cent – too bad for a company that’s doing business for decades.

At CMP of Rs.149.60/share, the company has a Marketcap of Rs.569 crores and its PE is 25.5. Despite a poor show this the DII’s own 6.6 per cent stake in the company.

But if we consider the following ongoing and future business plans, it appears the company may do well.

Walchandnagar Industries Ltd announced that the Company proposes to enter into a joint venture arrangement with DCNS, France for manufacturing of mechanical components for the submarine and other naval applications. A Memorandum of Understanding to this effect has been signed and the details of the intended joint venture are being worked out.

Walchandnagar Industries Ltd. will spend more than INR3 billion ($67.4 million) to build a heavy engineering plant in Gujarat. The Company has acquired 57 acres of waterfront land at Dahej, near Bharuch in Gujarat to build a green field manufacturing facility, especially for hydrocarbons and nuclear power segment. The plant is expected to be operational within three years.

Walchandnagar Industries Ltd. recently entered Into a Collaboration Agreement with Kawasaki Heavy Industries, Ltd. (Kawasaki of Japan for the sale and manufacture of Flow Dynamic Conveyor (FDC) in India. FDC is a technically advanced Product, used for conveying bulk materials in environmentally protected areas, as well as, earning carbon credits. The Product will suit the present / future Indian environment laws. The said agreement has become effective on October 28, 2010. Walchandnagar Industries Ltd. and Kawasaki believe that this Collaboration will open up strong opportunities for both companies in India in the field of Mining and Bulk Materials Handling.

Though one cannot predict the future of a company based on past track record, it is difficult to tell whether the stock will reach its 52 week peak of Rs. 292.90 again.

Conclusion : The business model of the company may seem to be good but I am not happy with the numbers and guess present/potential shareholders may not be elated either!

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd