Kirloskar Pneumatic Company Ltd BUY CMP 520.00

Kirloskar Pneumatic Company Ltd 

Becoming a compression technology partner for CNG infrastructure in India (from producing wells to distribution).

Being at the heart of the Indian cold chain industry with its natural refrigerant compressor developing advanced technology refrigeration systems for refineries and petrochemical plants in India.

Being a one stop shop for air conditioning and refrigeration systems of ships manufacturing High-end customized gearboxes for wind turbines and power plants, steel mills and cement plants.

Manufacturing Railway brake compressors for diesel electric locomotives reducing carbon footprint with efficient products

Segment Analysis from (ANNUL REPORT)

Company serves two business segments Compression Products/ Systems and Transmission Products. Company offers a wide range of products which include Air, Gas and Refrigeration Compressors, Packages and Systems.These products primarily serve Oil and Gas, Cold Chain and other industrial markets.Additionally Kirloskar Pneumatic Company Limited also serves defense needs of compression systems 

Oil & Gas Business: Company offers refrigeration and gas compression systems for refineries, petrochemical plants, CNG stations etc. Your Company has proven to key customers like ONGC, Reliance, Jindal, BPCL, HPCL, Shell and other companies its capabilities of design, procure, build & test high end systems. Customers have time and again posed confidence on this capability and this helps us to retain Market leadership in the segment.

Company bagged and executed significant projects during the period 2010-13. This was the time when oil and gas sector went in for modernization of the facilities and capacity additions. However since 2013 there has not been any significant investment in this sector by both the Government as well private sector. CNG stations have not grown in the recent past due to infrastructure issues and policy guidelines. Coupled with this oil and gas prices globally went down In-spite of this subdued business environment

Company has maintained market share in the Oil and Gas market. Your company is now regularly receiving orders for indigenous developed CNG compressor. The drop in oil prices has resulted in almost zero investments in this sector and only a few minor projects for improvement and up-gradation are seen in the coming year. Volatility and availability of gas in new cities is an issue which has affected investment in CNG stations. Very few CNG stations were installed in India in 2014-15 and your company has however continued to retain its market share in this business.

Cold Chain Business: Company supplies ammonia compressor and packages for the cold store units, dairy units and pharmaceutical plants. These compressors are of reciprocating technology and offer excellent reliability. Your company has a wide network of dealers who provide 24x7 services to the customers. Your company is closely associated with various state level cold store association and government nodal agencies and technical committees. KPCL enjoys excellent market share in this segment However 40% of this produce is wasted due to improper storage and transportation. India is the largest producer of milk in the world with 100 million ton production. However 10% of this milk gets wasted. With this in mind the Government of India is aggressively pushing for the infrastructure development for cold chain. The Government of India has set up NCCD - a national body to serve as a nodal agency to promote and develop cold-chain in India. Government has also announced incentives for infrastructure development in cold chain. With about 140 million ton of fruits and vegetable production, India is second largest producer in the world.

As such demand for compressors for cold stores is growing. During the year 2014-15  company has Grown this business by 14%. In fact this business has grown consistently over last three years at a CAGR 10%. Company has developed air cooled compressors which reduces system cost to the customer. This Also improves the efficiency and running cost. To improve quality and delivery of refrigeration compressors Company successfully installed sophisticated machining centers and results are very encouraging

Industrial Business: Your Company offers air compressors and packages of various technologies. KPCL Has distinction of over 10000 installations with reputed customers in cement, steel, power, engineering and other markets. KPCL has integrated capability of designing, manufacturing and servicing air compressors. Customers value engineering and solution offering capability of KPCL.

The year 2014-15 was difficult year for this business. With slowdown in the private sector investment over the last 2years, demand for compressors contracted by 40%. There was no major investment in key markets like air separation, steel plants, cement and power plants. With contracted demand competition was intense and put pressure on margins. Additionally, there is an entry of low cost products from Asian countries. There has been marginal improvement in demand from sectors like rice mills, textile, tiles etc. All this has resulted into lower sales by32% over previous year in the industrial business.

KPCL is known in the market place for engineering capability and customized design. Your company has Developed a new series of compressors which will reduce noise and vibrations for the customers. These Have successfully been offered in the high pressure market like PET bottling market. KPCL has entered into High speed compressor market with development of centrifugal compressor. First production unit is Installed at customer. All these technological innovations will take us to next level of growth

  

Defense Business: KPCL serves defense sector with products like HVAC systems and air compressor Packages. KPCL has unique distinction of being preferred supplier status. This has been possible with Relentless efforts of our engineering team. Some of the prestigious installations include HVAC system for

Warships and submarines, cooling trolleys for aircraft and helicopter, air charging units, refrigeration plants For food preservation. This is a tender based business and includes new equipment as well as service business. During the year 2014-15 this business dropped by 28% owing to delays in finalizing orders.

Transmission Products:

Your Company offers wide range of product which includes – Traction Gears, Customized Gearboxes and Specialized Products. These products primarily serve Indian Railways, wind power projects and other industrial

Markets.

a. Railways Business: Your Company is a strong player in this market. The company, over the years has Developed capability of manufacturing entire range of gear pinion requirement of Indian Railways. It has Been approved as part 1 supplier for the new generation high speed locomotives. Your company serves

Locomotive manufacturing units of Indian Railways.Over the last couple of years, your company worked extensively in modernizing its gear plant. As such,

Deliveries from gear plant improved dramatically. However demand for railways gears and pinions was Lower this year by 24%, due to excessive inventory at locomotive works. Spares demand continued to be Similar to previous year.

b. Wind Turbine Gearbox Business : Your Company traditionally has been manufacturing and selling gearboxes for wind turbines. These gear boxes can be classified into kilowatt class and megawatt class.Company is a leader in kilowatt class gearbox. With market moving to megawatt class, company has developed capability of making megawatt class gearbox. It works with some of the leading companies in wind power industry. Gearbox produced by KPCL is low noise and high reliability gearbox.For last two years new wind farm projects are very few. With a change in the Government policy on wind power projects the demand for gearbox has reduced substantially. In fact new wind power annual installations have dramatically dropped as compared to 2011. In last couple of years a few of our valued customers have actually gone bankrupt and closed down. In this diminishing market KPCL has maintained its market share and executed few orders for replacement of gearboxes in the sub megawatt class. This market is not expected to grow in the coming year. 

c. Industrial Gearbox Business: With a fluctuating demand in wind turbine gearbox market, your company strategically decided to work in the industrial markets with customized gearboxes. These are planetary gearboxes for sugar mills, cement plants, steel plants. To be successful in this business

company requires registrations with consultants and reference installations. This process has been taken up aggressively. As part of the strategy execution, KPCL has emphasized on developing competency and bringing new talent in design and marketing. KPCL proactively participated in the exhibitions which are specific tosectors like cement, steel, power and engineering industry. KPCL is now registered with more than 20 leading consultants/contractors. With this, KPCL has successfully executed prestigious orders from industry majors. This will help your company grow in the long term.

Opportunities, Threats and Concerns: Railways demand for traction gears may grow by 5% over next three years.Indian Railways is working on developing multiple sources. This may affect the growth opportunities for  company.envisaged. Although central government is working on promoting renewable energy, there are still many bottlenecks at state level such as power purchase agreements etc. Future direction for wind turbine business will be clear only towards end of 2015. KPCL will continue to explore new opportunities and support existing customer base.Company expects its entry into industrial gearbox market will open opportunities for growth. company is also exploring opportunity for entering service business for gearbox. KPCL planning to monitor the field performance of the gearboxes supplied and enhance customer satisfaction. This will instill confidence in customer about our reliability and service capability KPCL has developed capability for faster delivery which will be a competitive advantage.Wind turbine market has shown some sporadic movement in some parts of the country. 

But no major thrust is Gearbox business is solely dependent on availability of engineering talent and adequate infrastructure. Infrastructure has already been augmented with state of the art manufacturing and testing equipments procured from global leading  manufacturers. Engineering talent is being inducted and training on various software and analysis tools is being enhanced.

3. Other:

 Company has worked on a new technology offering the Road Railer for the logistics sector. This technology developed with the support of Wabash Inc, USA is designed to offer quicker, safer and economical transportation of cargo. Road Railer rake manufactured by your company has successfully completed the EBD (Emergency Brake Distance) test. Your company is now awaiting few clearances for commencing the operations.

 

	Quarter ended			Year to			Year ended
				Date
	201509	201409	% Var	201509	201409	%Var	201503	201403	% Var
	(3)	(3)		(6)	(6)		(12)	(12)
Sales	126.17	91.26	38.25	223.81	162.98	37.32	440.96	509.93	-13.53
Other Income	2.07	1.86	11.29	5.19	9.01	-42.40	16.29	10.56	54.26
PBIDT	14.00	4.21	232.54	21.81	4.95	340.61	47.34	75.03	-36.91
Interest	NA	0.01	-100.00	NA	0.01	-100.00	0.02	0.35	-94.29
PBDT	14.00	4.20	233.33	21.81	4.94	341.50	47.32	74.68	-36.64
Depreciation	3.89	4.64	-16.16	7.97	9.17	-13.09	18.90	13.21	43.07
PBT	10.11	-0.44	LP	13.84	-4.23	LP	28.42	61.47	-53.77
TAX	2.84	-0.46	LP	3.51	-4.00	LP	5.84	22.64	-74.20
PAT	7.27	0.02	36250.00	10.33	-0.23	LP	22.58	38.83	-41.85
Equity	12.84	12.84	0.00	12.84	12.84	0.00	12.84	12.84	0.00

 BUY ON EVERY DECLINE ONE CAN EXPECT 30% RETURN ON NEXT 6 MONTHS