Hi,
Hello to all the members.
I have made Debut on Traderji.com today and my opening MULTIBAGGER call is FLAT PRODUCTS EQUIPMENTS LTD.
While the stocks name is FLAT, it is likely to ZOOM shortly.
Key Investment Arguments
i) Expected sale of stake by promoters would lead to huge value unlocking
ii) Bulging order book of over Rs1000 crores
iii) Profits to surge manifold and
iv) A multi-bagger in the making; strongly recommended to BUY with a target price of Rs500
For details, see below
Expected sale of stake by promoters would lead to huge value unlocking. The key promoter of Flat Products Equipments (FPE) Mr. Tilak Raj Mehta, a technocrat and a first generation entrepreneur. Given that Mr. Mehta is 73 year old and is succeeded by three daughters, who are not in a position to operate the business on their own, Mr. Mehta is contemplating to divest promoter holding. We understand that the promoters are already in talks with most of its global competitors in the field viz. Hitachi and Kawasaki from Japan, SMS Demag and Siemens from Germany. Given FPEs strong designing skills and low cost manufacturing base in India, FPE offers humongous potential value to the global players. We believe that given the physical infrastructure of the company including factories at Taloja and Silvassa and office at Andheri (net worth of Rs75 crores at historical cost), a competent team as well as strong order book of over Rs1000 crores, the company could be at least valued at Rs250 crores (Rs500 per share) by global competitor eyeing at management control in the company. Moreover, the future outlook of the company would dramatically improve in the hands of the global leaders due to increased pricing power resulting from stronger brand as well as potential for outsourcing from India. Consequently, the expected change in management of the company would lead to significant value unlocking for the shareholders.
Bulging order book. After the successful execution of Rs200 crores project for Union Steel in China in CY04-05, FPE has been able to prove its credentials and make a mark in the global cold rolling machine making industry. Fighting competition against global majors, it has bagged a number of projects across geographies. Its current order book stands in excess of Rs1000 crores (Rs2000 per share), which is 2.2x FY07E revenues of Rs450 crores. Further, FPE is in the final stages of being awarded an order from Iran amounting US$64mn (Rs280 crores). Interestingly, this order is likely to be at significantly higher profitability compared to its current order book.
Profits to surge. FPEs profit margins had got adversely impacted in FY05-06 on account of the twin factors of aggressive bidding to secure large orders (at fixed prices) as well as a steep unexpected increase in prices of inputs. The company has largely recovered from this and is on track to achieve normal PBT margin of 5% from FY08E onwards. We expect the company to register PAT of around Rs20 crores (EPS of Rs40) on revenues of Rs600 crores in FY08E. If the Iran order were to get shipped in FY09E, the company could potential generate net profits in excess of Rs30 crores (EPS of Rs60) in FY09E.
A multi-bagger in the making; strongly recommended to BUY. The improvement in fundamentals of the company driven by robust order intakes at higher margin profile would lead to dramatic surge in profits from FY08E onwards. Besides, an imminent change in the management of the company would transform FPE from being a low-key Indian company operating at low margins to a subsidiary of engineering MNC, which can be expected to operate at very healthy margins. An expected surge in profits coupled with the likely change in the management of the company can result in a manifold increase in the value of the company over the next year from the current value of less than Rs75 crores. STRONGLY recommend to BUY with a target price of Rs500 per share.