lloyd electric and engineering ltd - a samsung in the making
TRANSCRIPT
Lloyd Electric and Engineering Ltd
A Samsung in the making
Oct-13
“AC” shall herein refer to Air Conditioners“Lloyd” shall herein refer to the company Lloyd Electric and Engineering Ltd“HVAC&R” refers to heating, ventilation, air-conditioning and refrigeration
Brij Raj Punj Group *
Fedders LloydLloyd Electric and
Engineering
$ 35 mi market cap group commenced commercial production of AC`s in 1957
Company manufactures Fabricated structures, Environment control systems
and Power T&D
Company manufactures Heat exchange coils, Air Conditioners, LED TV`s and
other consumer durables
Group Profile
* Not to be confused with Punj Lloyd
Product Profile
Lloyd is India`s largest manufacturer with the capacity to produce 1.4 mn coils/annum and more than 400 varieties of coils
Heat Exchanger Coils (major component of air conditioners)
Product ProfileConsumer Durables (also produces garment steamers, hot and cold air coolers)
0.8 ton to 4 ton window and split AC`s
22 inch to 55 inch LED, Full HD, Ultra HD and 3DTV
Company sells AC`s under the Lloyd brand and does contract manufacturing for other major brands
5000 dealers and 525 authorized service centres all over the country
Product ProfileCustomized solutions and Roof mounted AC systems to Indian Railways, Metro Rail and Buses
Company qualified as Category 1 supplier to Indian Railways
Railways give 80% of orders to Cat 1 suppliers
Customer Base
Major brands only stamp their nameLloyd does the real work
Company Time Line
1988• Starts manufacturing heat exchanger coils with machinery bought from
Burroak, USA
1995• Becomes India`s largest heat exchange coil manufacturer
2004• Contract AC manufacturing for other brands
2006• Issues GDR`s (Global Depository Receipts) and raises $ 29 mi from foreign investors• Stuffed with cash, company looking to acquire foreign HVAC companies
2008• Acquires Luvata Czech, one of Europe`s top heat exchange coil manufacturers• Starts supplying roof mounted AC units to Indian Railways and Metros
2013• Becomes worldwide supplier of HVAC&R for GE, Alstom and Bombardier• Rs 500 Crs of 11.25% non-convertible debentures privately placed in BSE
Company vertically integrated : Heat Exchange Coil to Air-Conditioner
Capacity Addition
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1990 1994 1997 2002 2004 2005 2013
Heat Exchange Coils
Air Conditioners
Millions per annum
5 manufacturing facilities spread across India
India AC Manufacturing
2010 India AC Market
Imported
Indigenous
1.6 mn units
2.6 mn units
Lloyd Produced
Others
An astonishing 20% of AC`s manufactured in India are by Lloyd
Source : March 2012 Lloyd Investor Presentation (The AC market since 2010 has not seen any substantial growth hence, can expect only minor changes)
Revenues and PAT over time
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2005 2006 2007 2008 2009 2010 2011 2012 2013
Revenue (Rs Crs)
PAT(Rs Crs)
Low PAT margins Last 3-yr PAT average at Rs 42 Crs
Quality FirstUnderwriters Laboratories USA certifies company`s end products
Company ISO 9001:2008 qualified
International Railway Industry Standard (IRIS) certification awarded recognizing itscompliance with international railway industry for design and manufacture ofHVAC&R systems, making the company eligible to bid for international contracts
The Buzzwords : Eco-Friendly and Energy Efficient
Lloyd is not just a manufacturerIt is a technology driven company
Majority of Company`s AC`s 3 or 5 star energy rated
Developing a slew of products whichuse environment friendly refrigerants
Company at the forefront of cutting edge and environment friendly Micro Channel Heat
Exchanger technology
The Global HVAC&R Player
Lloyd International Subsidiaries
Luvata Czech Janka Engineering
-Czech based manufacturer ofcommercial heat exchange coils.Expertise in refrigeration and coldchain systems maybe used in Indiaby Lloyd in the future.
- Acquired by Lloyd for Euro 15 mi in2008
- Clients include GE, Carrier, Boschetc
- Czech based manufacturer of Airhandling units, blowers, industrialcoolers , heating and cooling coils
- Acquired by Lloyd for Euro 4.5 miin 2009
- Company also supplies coolingunits to nuclear plants. Lloyd maylook at technology transfer to enterIndian nuclear sector.
Strong support provided by Lloyd to both subsidiariesHas lent a total of Rs 43 Crs worth of loans
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Lloyd has managed post-acquisition pains well and is looking to go global with Luvata Czech
Luvata Czech Growth graph (acquired in 2008)
Revenue (Euro mi)
EBIDTA (Euro mi)
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2005 2006 2007 2008 2009 2010 2011 2012 2013
EBIDTA Margins and the Way Forward
EBIDTA as % of Revenue
Low EBIDTA margins are a spoilerCompany looking to add value and directly reach the customer to
improve this
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2005 2006 2007 2008 2009 2010 2011 2012 2013
Improving Value Mix
Coil Sales as % of Revenue
Excellent value addition since 2005From just coil manufacturer, company has moved onto the top of HVAC value chain
Delhi Metro and Indian Railways orders expected to have 20% margins
AC Sales as % of Revenue
Brand Building
Karan Johar roped in as brand ambassador in 2011
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Advertising Spend
Advertising spend (Rs Crs)
Company marketing itself aggressivelyBecoming a familiar face in cricket tournaments
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The Biggest Problem – High Working Cap Requirement
DividendPayout(Rs/Share)
Working Cap as % of Revenue
High working cap leading to negative cash flows Company with Debt Equity ratio of 0.77 taking up enormous short term debt to finance
working cap
Working Cap = Current Assets – Current LiabilitiesInventories and Receivables are main contributors to high working cap
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The Darling Stock – Until 2008
P/E(X)Market Cap (Rs Crs)
Stock trading at massive discount to 2008 levelsMr Market has neglected and forgotten Lloyd
The ResurrectionMarket Valuation, Promoter Reputation and High Entry barriers in the HVAC&R industry are main factors
- At CMP of Rs 33 and current market cap of Rs 115 Crs, company trades at P/E of 2.3 x and P/BV of 0.2 x
- Considering the company`s near monopolistic position and the huge barriers to entry, this is a serious valuation mismatch
- Small but consistent dividend payout for last 6 years- Promoters are pioneers in HVAC&R, hold 38% stake and have been
with the company for 25 years- Promoters have good standing with institutional investors, evident
from $ 25 mi GDR issue and Rs 50 Crs NCD issue- Working capital requirement as % of revenue is the only problem.
With the company improving its value mix and reaching the customer directly, this ratio is bound to improve
A hugely underestimated stock that is bound to be re-rated to P/E of 8x: a four-fold increase from present valuation
Thank You – The Pokaran Money Manager* Source: WSJ.com, Mr Buffet and his Elephant gun