Stock Pick from Mechanical or Industrial Engineering

LOW PRICE SCRIP

Here Is Why:

• It is targeting to be a one-stop solution provider for critical sectors.

• The electrical industry has been undergoing positive growth with increased demand and production for both rotating and static electrical motors.

• It has blue chip clients on its roster.

Pitti Laminations : Assured Growth Through Diversification 

This time we are focusing on a company whose products have application in industrial motors, alternators, hydro-electric and thermal power generators, wind power generators, DC machines, railway traction motors, pumps, medical diagnostic equipment, and aeronautic wing control motors.

Pitti Laminations (PLL) is engaged in the manufacture of electrical steel laminations. The company’s business operations is diversified into manufacturing castings, steel fabricated parts, and machined components stator and rotor assemblies, and is further planning to diversify into forgings i.e. it is targeting to be a one-stop solution provider for critical sectors. It has blue chip clients on its roster and the demand for its products is improving day after day as the user industries are on an expansion mode. Growth is targeted through continuous forward and backward integration plus enhancement of capacities.

In FY14 the company had installed capacity of 32,000 MT of laminations at Telangana. In December 2014 PLL shifted a part of its capacity to a new facility in Pune, Maharashtra with production capacity of around 15,000 MT with the objective to strengthen its competitive advantage. This initiative of getting closer to raw material vendors and customers will result in reduction of cost of transportation. Furthermore, this shift is expected to increased demand, thus strengthening the company’s revenues and margins. PLL is focusing more on value-added assembly products used for special purpose equipment needed by the railways and aviation sectors.

Silicon steel is a core raw material for electric laminations which accounts for almost 90 per cent of the total raw material cost. Silicon steel’s production capacity in India is limited. Therefore PLL has to import the raw material from China, Korea, Japan, Switzerland and Germany.

In 9M FY15, PLL’s revenues grew by 30.7 per cent to Rs 154 crore from Rs 108 crore in 9M FY14 mainly due to higher volumes, up by 42.9 per cent at 15,399 MT. Even its bottomline grew by 110 per cent at Rs 4.7 crore as against Rs 2.2 crore in the corresponding period due to heavy reduction in forex loss to Rs 2.3 crore from Rs 10.4 crore. Recently the company has approved the sub-division of its face value from Rs 10 to Rs 5 per share.

On the valuation front, PPL is trading at TTM PE ratio of 21 and on the basis of its price-to-book value, it trades at 1.2x. The electrical industry has been undergoing positive growth with increased demand and production for both rotating and static electrical motors. The capital goods sector is poised for huge growth opportunity considering the capital investment and infrastructure plans lined up, robust order book positions, movement up the value chain, and greater thrust on exports. Given the growth prospects of the company, the script demands higher valuation. Therefore we recommend a buy on this counter with a 30-35 per cent return perspective in the next one year.