Rishi Laser Ltd BUY (59.00 Rs)

A dedicated vendor for many MNC engineering giants in construction equipment,power and metro rails

From a fabricating subcontractor to a laser cutter and welder, Rishi Laser has come along way, moving up the value chain and becoming a dedicated vendor to some of the major construction equipment (CG) players like JCB, BEML, L&T, Volvo, Ingersoll Rand and Caterpillar, supplying them various assembly parts and other fabricated structures. The company is a dedicated vendor to power transmission and distribution (T&D) companies such as Areva, ABB, Alstom, Crompton Greaves, and Schneider, supplying fabricated structures like SS boxes and switchgear kits .

Rishi Laser is a sole dedicated vendor for the supply of various assemblies and fabrications to Tata Hendrickson’s for its commercial vehicle suspension system. The company provides various assembly parts and fabrication works to Bombardier Transportation(BT) for its Delhi metro projects. It supplies and undertakes fabrication works for the textile machinery and food processing industry. Rishi Laser has 14 plants located across India to serve its customers. Sales to the CE sector accounted for 24% of total sales in the fiscal ended March 2010(FY 2010). Sales to rail transportation (RT) comprised 11%, sales to power generation and distribution (PGD) segment 18%, and automotive sales 23%. Once all the industries pick up,sales to the CE, RT, PGD and automotive sectors each will range between 20% to 25% of total sales.

Rishi Laser started FY 2011 on a strong note. Standalone net sales were up by 50% to Rs37.69 crore in first quarter ended June 2010, while better operating profit margin of15.1% resulted in strong operating profit growth of 93% to Rs 5.68 crore. The June 2010 quarter was very unique for Rishi Laser. Its traditional business verticals, construction equipment and power T&D were not growing as expected. Yet,growth came from other business verticals including automobiles and railway transportation(Metro rail). The company is a dedicated fabricator for these sectors. Orders from Tata Hendrickson for autos and from BT for metro projects ensured strong set of numbers.Exports of moulds to Brazil also helped.
CE and power T&D players are expecting a strong set of growth in orders from H2 ofthe fiscal ended March 2011 (FY 2011) onwards. JCB, the largest player in back loader,plans to manufacture 18,000 numbers of back loaders in August 2010 as against about 10,000numbers on an average in Q1 fo FY 2011. One of the units of the Pune, Maharashtra, plant of Rishi Laser is fully dedicated to fabrication and assembly of JCB order. Further, there is less inventory lying with CE players. So ordering and execution will be much faster.
Consolidation is happening in the power T&D space. Large players like ABB, Arevaand Siemens are still fighting for orders and margin. However, all these giant players arebetting big on the country and have laid out massive capacities in India. ABB already hashuge capacity in Baroda in Gujarat, while Areva just expanded it by spending about Rs 950crore and Siemens Rs 350 crore for more indignation of products. Rishi Laser has worked with all these companies and is a preferred vendor for all of them. As and when the consolidation within the power T&D sector ends, volumes will kick in, resulting inbetter orders and margin for Rishi Laser.
Rishi Laser already had expanded in the downturn of FY 2009, and has sufficient capacities to serve its customers. However, the downturn resulted in lower utilization of capacities, resulting in lower margin. With the economy back on track and orders expected to flow strongly from all sectors, capacities will be utilized at the optimum level,resulting in better margin.

We expect Rishi Laser to report net sales and profit after tax of Rs 177.51 crore andRs 7.76 crore in FY 2011. This gives an EPS of Rs 8.8. This EPS is expected to rise to Rs13 in FY 2012. At the current market price of Rs 80, the scrip is available at 7 times expected FY 2011 earning and only 4.5 times its expected FY 2012 earning.

Rishi Laser has worked very closely with many of the large engineering giants and now has become a dedicated vendor to serve them. While the number of dedicated customers is onrise, the growth of the company will depend upon how that particular industry is growing.With an all-round growth expected from H2 of FY 2011 onwards due to pick-up in capex cycle and the company having sufficient capacity to serve vendors for all stream of businesses,Rishi Laser is set to get the maximum benefits.

Source: Capitaline Databases