lloyd electric and engineering ltd - a samsung in the making
TRANSCRIPT
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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
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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
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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)
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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
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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
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Customer Base
Major brands only stamp their nameLloyd does the real work
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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
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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
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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)
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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
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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
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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
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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
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Brand Building
Karan Johar roped in as brand ambassador in 2011
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2005 2006 2007 2008 2009 2010 2011 2012 2013
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
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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
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Thank You – The Pokaran Money Manager* Source: WSJ.com, Mr Buffet and his Elephant gun