EL Forge-Hameed-3aug2k5
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(May not be useful for day-traders.)
EL Forge-Forging in a Global Footprint
BSE 531144, CMP Rs 124.45 BUY (Not applicable for day-traders.)
Shares O/S: 6.56 mn Market Capitalisation : Rs 82 crore
Fiscal 2005 EPS: Rs 6.53, Fiscal 2006 e: Rs 10
12 M Targeted price: Rs 175
Market Capitalisation on targeted price: Rs 114 crore
Chennai based forged components manufacturer EL Forge has set in motion a tear away growth trajectory which should push its gross sales to over Rs 300 crore by the fiscal 2007. This is being achieved by a near 70 per cent increase in installed capacity by end 2005 costing Rs 17 crore, and acquiring a UK based forging concern with annual revenues in excess of Sterling pounds 4.5 million or Rs 40 crore approximately.
The basics
El Forge is one of the leading forging producers in South India with over 38 years of experience in metal forming. El Forge serves major vehicle and automotive component manufacturers and process industries, both domestic and overseas. The range of materials handled include Carbon, Alloy and Stainless Steel, and supplies are made both in as forged and pre-machined condition.
The total annual capacity with EL Forge is 14,200 MT, which is being raised to 24,000 MT by end 2005.
To which will be added the UK acquisition
Earlier this year, the EL Forge board approved the acquisition of a majority stake in SHAKESPEARE FORGING LIMITED (S F L), Birmingham, UK. SFL is a forging company catering to the automotive, agricultural, mining and other segments mainly in the UK. For the year ended 31st December 2004, SFL achieved a turnover of £ 4.5 million. Apart from giving ready access to the UK market, the El Forge management believes that consequent upon the acquisition, the turnover from this platform can be significantly enhanced in the coming years.
At present roughly 25 per cent of the production at El Forge is shipped to discerning markets in the US, UK and Germany. With the UK acquisition, El Forge would be able to the serve the European markets without encountering protectionist measures or taking over the currency risk of producing in rupees but selling in Euros or pounds. Except that El Forge will have to account for translation differences at the end of the year.
Rich Pedigree of Clients
From its four manufacturing units in Chennai and Hosur, El Forge supplies forged products to the likes of Bosch India and Germany, Arvin Meritor India and USA, Sundaram Clayton and Clayton USA, Rane TRW India and TRW USA, Toyota India and Toyota Japan, and IL Jin Korea. The products include drop forgings, press forgings, upset forgings and semi finished machined units. These broad categories cover engine parts, transmission parts, steering and suspension parts, brake assembly parts, chassis parts, drive lines and electricals.
Financials are improving
For the first quarter to June 2005, El Forge reported gross revenues of Rs 25.5 crore (Rs 19.4 crore), with after tax profits of Rs 1.19 crore (Rs 73 lakh). These numbers are pointer that stand alone Revenues of El Forge would exceed Rs 125 crore (Rs 93 crore) for the fiscal 2006, with after tax profits of Rs 6.5 crore (Rs 4.36 crore). Thus, fiscal 2006 EPS would rise to Rs 10 as against Rs 6.53 for fiscal 2005.
There are couple of things that need to be considered here. The promoters would be raising their stake in El Forge later in the year through a preferential offer, and there is a very high likelihood that the UK acquisition too would be funded through a preferential offer to FIIs, QIIs and OCBs at a premium to the current market price of Rs 124.45 per share. The stock is already favoured by some FIIs including Goldman Sachs Mauritius, which owns a 6 per cent stake in the company.This process will however, lead to a dilution in equity during fiscal 2006.
The more important part is that the annual accretion to Revenues in excess of Rs 40 crore from the UK acquisition and a 70 per cent increase in installed capacity would become evident in Q3 and Q4 of fiscal 2006, which would nullify the impact of an equity dilution.
To me the corporate with its existing links with European and US component buyers, would move into a growth trajectory in 2006, which will reach a crescendo in 2007 and 2008. In all a doubling in turnover over the next 3 years, and a doubling in profits needless to say.
The El Forge stock is an emerging growth story, and current valuations are inexpensive in relation to the growth envisaged. BUY.
(May not be useful for day-traders.)
EL Forge-Forging in a Global Footprint
BSE 531144, CMP Rs 124.45 BUY (Not applicable for day-traders.)
Shares O/S: 6.56 mn Market Capitalisation : Rs 82 crore
Fiscal 2005 EPS: Rs 6.53, Fiscal 2006 e: Rs 10
12 M Targeted price: Rs 175
Market Capitalisation on targeted price: Rs 114 crore
Chennai based forged components manufacturer EL Forge has set in motion a tear away growth trajectory which should push its gross sales to over Rs 300 crore by the fiscal 2007. This is being achieved by a near 70 per cent increase in installed capacity by end 2005 costing Rs 17 crore, and acquiring a UK based forging concern with annual revenues in excess of Sterling pounds 4.5 million or Rs 40 crore approximately.
The basics
El Forge is one of the leading forging producers in South India with over 38 years of experience in metal forming. El Forge serves major vehicle and automotive component manufacturers and process industries, both domestic and overseas. The range of materials handled include Carbon, Alloy and Stainless Steel, and supplies are made both in as forged and pre-machined condition.
The total annual capacity with EL Forge is 14,200 MT, which is being raised to 24,000 MT by end 2005.
To which will be added the UK acquisition
Earlier this year, the EL Forge board approved the acquisition of a majority stake in SHAKESPEARE FORGING LIMITED (S F L), Birmingham, UK. SFL is a forging company catering to the automotive, agricultural, mining and other segments mainly in the UK. For the year ended 31st December 2004, SFL achieved a turnover of £ 4.5 million. Apart from giving ready access to the UK market, the El Forge management believes that consequent upon the acquisition, the turnover from this platform can be significantly enhanced in the coming years.
At present roughly 25 per cent of the production at El Forge is shipped to discerning markets in the US, UK and Germany. With the UK acquisition, El Forge would be able to the serve the European markets without encountering protectionist measures or taking over the currency risk of producing in rupees but selling in Euros or pounds. Except that El Forge will have to account for translation differences at the end of the year.
Rich Pedigree of Clients
From its four manufacturing units in Chennai and Hosur, El Forge supplies forged products to the likes of Bosch India and Germany, Arvin Meritor India and USA, Sundaram Clayton and Clayton USA, Rane TRW India and TRW USA, Toyota India and Toyota Japan, and IL Jin Korea. The products include drop forgings, press forgings, upset forgings and semi finished machined units. These broad categories cover engine parts, transmission parts, steering and suspension parts, brake assembly parts, chassis parts, drive lines and electricals.
Financials are improving
For the first quarter to June 2005, El Forge reported gross revenues of Rs 25.5 crore (Rs 19.4 crore), with after tax profits of Rs 1.19 crore (Rs 73 lakh). These numbers are pointer that stand alone Revenues of El Forge would exceed Rs 125 crore (Rs 93 crore) for the fiscal 2006, with after tax profits of Rs 6.5 crore (Rs 4.36 crore). Thus, fiscal 2006 EPS would rise to Rs 10 as against Rs 6.53 for fiscal 2005.
There are couple of things that need to be considered here. The promoters would be raising their stake in El Forge later in the year through a preferential offer, and there is a very high likelihood that the UK acquisition too would be funded through a preferential offer to FIIs, QIIs and OCBs at a premium to the current market price of Rs 124.45 per share. The stock is already favoured by some FIIs including Goldman Sachs Mauritius, which owns a 6 per cent stake in the company.This process will however, lead to a dilution in equity during fiscal 2006.
The more important part is that the annual accretion to Revenues in excess of Rs 40 crore from the UK acquisition and a 70 per cent increase in installed capacity would become evident in Q3 and Q4 of fiscal 2006, which would nullify the impact of an equity dilution.
To me the corporate with its existing links with European and US component buyers, would move into a growth trajectory in 2006, which will reach a crescendo in 2007 and 2008. In all a doubling in turnover over the next 3 years, and a doubling in profits needless to say.
The El Forge stock is an emerging growth story, and current valuations are inexpensive in relation to the growth envisaged. BUY.
posted by gd26ram at
5:14 AM
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