Buy Lanco Industries Ltd. Target 136.00, Report By Swastika Investmart Stock Broking House

INDORE, India - Nov. 3, 2014 - PRLog -- Lanco Industries Ltd.

COMPANY PROFILE: Lanco Industries Limited (LIL) promoted by the Lanco Group in 1992 set up a Mini Blast Furnace (MBF) in 1994 with an installed ability of 90,000 TPA to manufacture and sell Pig Iron to foundry units crossways India. In 1998, LIL entered into a deal to provide Molten Iron and Pig Iron to Lanco Kalahasthi Castings Limited (LKCL), a company inside the similar campus engaged in the business of Iron Castings & Forging. LKCL later on addition high technology Ductile Iron Pipes (DIP) manufacturing services to its portfolio.

AREA OF BUSINESS- Pipe Manufacturing (STEEL - PIG IRON)

TECHNICAL CHART:

Fundamental View

Q2 FY’15 RESULTS: The gross operating revenue of the Company has increased from Rs. 863.39 Cr. in FY 2012-13 to Rs. 989.40 Cr. in FY 2013-14, registering an increase of 14.60%. With the reduced cost of molten metal and captive power coupled with moderate growth in the volumes of D.I. Pipes. The Company has also achieved a pre-tax profit of Rs. 38.70 Cr. in the FY 2013-14 as against a net loss of Rs. 13.10 Cr. reported in the FY 2012-13.

THE YEAR IN RETROSPECT (2013-14 Vs. 2012-13) (Sources-Management Discussion): The volumes of invention and deals of the Company’s yield reflected a modest increase through the year 2013-14.

·         1,37,339 MT coke was produced in the Coke Oven Plant for captive consumption during 2013-14 vis-à- vis 1,25,239 MT in 2012-13.

·         The 12 MW Waste Heat Recovery Based Co-Generating Captive Power Plant of the Company generated 882 lakh units of power compared to 642 lakh units in FY 2012-13.

ECONOMIC RISK:

Due to the high volatility in costs of foremost raw materials utilized by the Company, it is open to the risk of narrow margins.

INDUSTRY OUTLOOK:

Newly Indian Government is committed to advanced asset in the water infrastructure. We are also expecting that the demand for Indian pipe industry will go on to stay strong local as well as internationally. In the coming year, consider the Government’s spotlight for water infrastructure projects, cleaning of rivers and also spotlight on water transportation, resultant in the increase of the pipe industry.

FUTURE OUTLOOK: In the present economic year 2014, the company has made an asset of Rs. 100 Crores by way of capital expenses to get better the quality and production level of Ductile Iron Pipes. The company is addition sure balancing services which include progress of blowing capability in MBF, extra initiation furnace, fresh spinning machine with upper yield, additional concluding streak and other process automation equipments.

The company incessantly improved its production capacity and as per the date shown, after the completion of the growth, the production of D.I. Pipes is predictable to go up by 50,000 MT/annum, resulting in improved revenues and profit of the Company. Separately from this, the continuous course in the demand for DI pipes is expected to supply really to the increase of the Company.

OPPORTUNITIES FOR PIPE INDUSTRY: Govt. of India’s stress on rural water board, water and sewerage infrastructure development will be pleased only when there will be good transportation of water to the end-user. This is one of the foremost demand drivers of the pipe industry. However, strong competition in the Local market and unpredictability in the costs of main inputs may concern the margins.

CONCLUSION: It can be seen that the company is on the verge of growth in the coming years, depending on the acceleration in demand for products in the market. Also, the company has shown a good set of numbers in terms of income and profit both yearly and quarterly. We expect that the company will be growing at a CAGR of 15.77% over FY2014-16E to 1339.06 cr. Consequently, the net profit is expected to be at `52.88Cr. In FY2016E. At the current market price, the stock is trading at a PE of 5.25x its FY2016E earnings. We have an advice for (medium to long term) investor to buy the stock with a target price of `136.00.

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