ISGEC HEAVY ENGINEERING: SUCCESS TRIGGERED BY TECHNOLOGY

ISGEC HEAVY ENGINEERING: SUCCESS TRIGGERED BY TECHNOLOGY

With 900 qualified engineers and as many technicians on board, it enjoys the challenge of providing state-of-the-art, sustainable, sensible solutions to its vast and ever-growing list of customers from around the world and customers who have regularly placed repeat orders with the company 


The ISGEC Group made its first footprint in 1933 in the sugar industry and later diversified into a range of engineering products. The group has a sales turnover of USD 500 million across seven business units, namely, process plant equipment, presses, iron and steel casting, boilers, EPC of power and sugar plants, sugar machinery and trading in machine tools. The group has grown at a CAGR of 40 per cent in the last five years or so. The products and solutions at ISGEC Group have been delivered to reputed companies across more than 70 countries. ISGEC Heavy Engineering Limited is the flagship public-listed company of the group. It is a multi-product, multi-location public company that has been providing engineering solutions to customers around the world for the past 88 years.

The company ranks 236 in the ET 500 listing and 220 in the Fortune India 500 listing. With 900 qualified engineers and as many technicians on board, it enjoys the challenge of providing state-of-the-art, sustainable, sensible solutions to its vast and ever-growing list of customers from around the world and customers who have regularly placed repeat orders with the ISGEC Group. Its customers are located in 91 countries across six continents. Spread over 100 hectares, its manufacturing facilities cover a shop floor area of over 1,20,000 sq. metres i.e. 1,43,520 sq. yards with world-class manufacturing and testing facilities.

Sector Overview

The engineering sector proudly bears the tag of being one of the largest sectors in India. It accounts for 27 per cent of the total factories in the industrial sectors and contributes 63 per cent of the overall foreign collaborations. Increased investment in infrastructure and industrial production has led to remarkable growth in the engineering sector in the last few years in India. The engineering sector holds a strategic importance in India’s economy, being closely associated with the manufacturing and infrastructure sectors. The turnover of the capital goods’ industry was estimated at USD 92 billion in 2019 and is forecasted to reach USD 115.17 billion by 2025. India exports engineering goods mostly to the US and Europe, which account for over 60 per cent of the total export.

Engineering exports were recorded at USD 75.90 billion in the financial year April 2020 and reached USD 60.25 billion in financial year January 2021. The Index of Industrial Production (IIP) for the electrical equipment industry stood at 105.5 in FY20. The Indian machine tool production and consumption segment was estimated at Rs 6,150 crore (USD 872.46 million) and Rs 15,670 crore (USD 2.22 billion), respectively, in 2019-20. The engineering sector in India attracts attention from foreign players as it enjoys comparative advantages in terms of manufacturing cost, technology and innovation. The above, coupled with favourable regulatory policies and growth in the manufacturing sector, has enabled several foreign players to invest in India.

Financial Overview

The financial performance by the company shows that on a consolidated quarterly basis the net sales and other operating income increased to Rs 1,617.70 crore in Q4FY21 as compared to Rs 1,555.02 crore in Q4FY20, bagging gains of 4.03 per cent. The operating profit stood at Rs 131.40 crore in Q4FY21 as compared to operating profit Rs 70.66 crore in Q4FY20, exhibiting a robust growth of 85.96 per cent. Q4FY21 recorded net profit of Rs 68.48 crore as compared to net profit of Rs 12.62 crore in the same quarter in the previous year, clocking massive gains. On the annual front, its net sales and operating income dipped by 7.76 per cent from Rs 5,882.06 crore in FY20 to Rs 5,425.57 crore in FY21. The operating profit zoomed by 42.07 per cent in FY21 as compared to FY20.

Its net profit jumped 69.69 per cent in FY21, posting Rs 252.89 crore as compared to Rs 149.03 crore in FY20. As for the revenue earned by the company, the manufacturing of machinery and equipment segment recorded revenue of Rs 559.93 crore in Q4FY21 with a 59 per cent rise on a YoY basis as well as a 58 per cent rise on QoQ basis. The engineering, procurement and construction (EPC) segment witnessed revenue of Rs 1,000 crore in Q4FY21, indicating de-growth of 9 per cent on YoY basis and growth of 2 per cent on QoQ basis. Revenue from the sugar segment rose 33 per cent on YoY basis and 44 per cent on QoQ basis.

Annually, the highest revenue growth was exhibited by the sugar segment, helping fade out the 12 per cent and 3 per cent de-growth shown by the EPC and manufacturing segments. The total debt to equity ratio for the company has reduced from 0.5 in FY20 to 0.4 in FY21. The interest coverage ratio, which indicates how easily a company can pay interest on its outstanding debt, has improved from 6.2 times to 8.1 times in FY21. Despite the challenging environment and higher mix of EPC work, ISGEC witnessed positive operating cash flow in FY21. Promoters held 62.4 per cent stake in the company as of March 31, 2021, while FIIs held 2 per cent, DIIs 6.9 per cent, and public and others 28.7 per cent.

Conclusion

With 100 per cent foreign direct investment (FDI) allowed through the automatic route and initiatives like Make in India, major international players have entered the Indian engineering sector to tap the significant growth opportunities available. According to the United Nations Conference on Trade and Development (UNCTAD), India is ranked among the top 10 recipients of FDI in 2019, attracting USD 49 billion in inflows, a 16 per cent increase from the previous year, driving FDI growth in South Asia. FDI inflows for miscellaneous mechanical and engineering sectors were seen at USD 3,669.51 million between April 2000 and December 2020, states the data released by the Department for Promotion of Industry and Internal Trade (DPIIT).

India is believed to be in need of Rs 235 trillion (USD 3.36 trillion) of investment in infrastructure in the next decade. The export of engineering goods is expected to reach USD 200 billion by 2030. Amidst this overall positive scenario, ISGEC Heavy Engineering has been constantly endeavouring to improve its offerings to the customers and is always on the lookout for the latest technologies and processes. Over the years the company has had an array of successful technology tie-ups with the best of companies from around the world. This process of keeping pace with global benchmarks continues even now, as is evident from the companies with whom it has ongoing strategic agreements. As such, the company has been building strength with technology partnerships globally. The order book of the company stood at Rs 6,765 crore.

The company has bagged multiple new orders including a major contract for piping spools in the hydrocarbon sector, process plant order on EPC basis for a 200 TPD formaldehyde plant, slop fired boiler for distillery plants of major sugar companies, remnant life assessment study (RLA) for boilers, etc. It has diversified its market risks with a presence in multiple core sectors and also well-positioned itself to survive any types of down cycles. Its leadership position in most of its business segments gives it an edge for quick growth in the future. The company has decided to continue its focus on niche technologies in order to deliver quality work to clients and customers. Hence, owing to the company’s positive growth prospects based on the predicted advancements in the engineering sector in the near future, we recommend a BUY for ISGEC Heavy Engineering.

 

Rate this article:
No rating
Comments are only visible to subscribers.

DALAL STREET INVESTMENT JOURNAL - DEMOCRATIZING WEALTH CREATION

Principal Officer: Mr. Shashikant Singh,
Email: principalofficer@dsij.in
Tel: (+91)-20-66663800

Compliance Officer: Mr. Rajesh Padode
Email: complianceofficer@dsij.in
Tel: (+91)-20-66663800

Grievance Officer: Mr. Rajesh Padode
Email: service@dsij.in
Tel: (+91)-20-66663800

Corresponding SEBI regional/local office address- SEBI Bhavan BKC, Plot No.C4-A, 'G' Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400051, Maharashtra.
Tel: +91-22-26449000 / 40459000 | Fax : +91-22-26449019-22 / 40459019-22 | E-mail : sebi@sebi.gov.in | Toll Free Investor Helpline: 1800 22 7575 | SEBI SCORES | SMARTODR