Alfa Laval
Lively growth
This MNC engineering company caters to a wide range of industries and has good order book
| Buy | Alfa Laval India |
| BSE Code | 505885 |
| NSE Code | ALFALAVAL |
| Bloomberg | ALFA@IN |
| Reuter | ALFA.BO |
| 52-week High/Low | Rs 1380 / 750 |
| Current Price | Rs 939 (as on 29th February 2008) |
Alfa-Laval India (ALIL) is a 76.73% subsidiary of the Swedish multinational Alfa Laval, which is a leading provider of specialised products and engineering solutions. In India, ALIL employs over 900 people and supplies machinery and turnkey projects to market segments as varied breweries and distilleries, oil processing, chemical - both organic and inorganic, marine, diesel, nuclear and thermal power. In most of these segments it enjoys either number one or two position.
ALIL India manufactures and supplies a wide range of key components and systems in Separation, Heat Transfer and Flow Technology. ALIL manufactures a range of engineering products (which is also used for the biotechnology industry) including sterile tanks for transfer, vibro mixers, purified water generators and distribution systems and downstream processing separation and filtration systems. The company's business profile provides lot of flexibility in its operations.
The company has two different division, the Equipment Division and the Process Technology division.
Equipment division
For the December 2007 quarter, this division registered 42% rise in its revenues to Rs 103.22 crore and accounted for 50% of the company’s sales. PBIT from this division improved 26% to Rs 17.34 crore accounting for 56% of total.
For the FY, this division registered 40% rise in its revenues to Rs 339.91 crore and accounted for 49% of the company’s sales. PBIT from this division improved 11% to Rs 61.12 crore accounting for 44% of total.
Equipment Division responsible for the sale of high speed separators, plate heat exchangers and fluid handling equipment caters to the requirements of marine and ship building, diesel power, industrial and commercial refrigeration, comfort cooling and airconditioning, food processing, auto component industry, pharmaceutical and biotech industry and other allied industries in the domestic market while exporting the same through the Principals.
The Marine and diesel market segment serving the shipyards and diesel engine builders is expecting a significant expansion to the ship building activities both for defence and commercial purposes. Key engine builders in diesel power market are foreseeing growth opportunities not only in the domestic market but also offshore markets for setting up power plant, which could translate into sizeable business for the company’s high speed separators. Though considerable investment is in the offing for the power sector to boost up the power generation, it would take sufficiently long time to narrow the gap between demand and supply. In this context, selling up of DG based captive power plants especially to continuous process industries would continue and offer continuing growth to the company which is a leading player in this market.
The continuous drive of investments in the food processing sector, personal care product industry, pharmaceutical and biotech plants with an eye on savings in operational costs is expected to present good business opportunities for the sanitary equipment business and for the contractors and system builders engaged in the business of refrigeration and cooling systems. The continued establishment of IT parks, shopping malls and growth in hotel of Industry, multiplexes besides the modernization of airports all requiring efficient cooling systems would also provide significant business opportunities in this segment through the main contractors and system builders. As the company works very closely with many such contractors and system builders for their requirements of various components to be built into their systems the growth potential for the company’s products suited to these applications is good and this trend is expected to continue considering the projected developments.
The automobile sector is on the recovery mode, which will boost the growth opportunities for its ancillary industries. The sourcing auto components by vehicle manufacturers from abroad is providing ample business formalities for such ancillaries. ALIL’s separation and heat exchange equipment play a significant role in the operations of the auto ancillary industries and the continued growth in the automobile sector would serve the company's interests.
The modernization of railways is expected to reap good business opportunities for the company’s heat exchange equipment, lube oil liberation and crank case ventilation products. The demand for compact and efficient heat exchangers from air dryer manufacturers for their installations at various places is expected to escalate in view of the necessity of efficient working and maintenance of equipment requiring dry air.
With strong capacity additions and quality standards established, the export of separators, plate heat exchangers and flow equipment to the principals is expected to show rapid growth. Absorption of new models and improved quality standards while helping its domestic customers also provide an opportunity for better value addition to the company.
Process Technology Division
For the December 2007 quarter, this division registered 15% rise in its revenues to Rs 102.68 crore and accounted for 50% of the company’s sales. PBIT from this division zoomed 336% to Rs 22.40 crore accounting for 56% of total.
For the FY, this division registered 1% rise in its revenues to Rs 353.16 crore and accounted for 51% of the company’s sales. PBIT from this division improved 43% to Rs 76.95 crore accounting for 56% of total.
The company combines its three core technologies of separation, heat exchange and fluid handling with Drying and Evaporation technology, local fabrication expertise end project engineering skills to offer complete process solutions to venous process industries including edible oil processing, brewery, starch, paper, food processing, distillery, chemical, pharmaceutical, biotech etc.
While the company is witnessing a good order book in this segment on the back of the strong investment activity in the country, the future also looks bright. While dairy products like lactose and casein may not see arty major activity for some time, the edible oil processing industry which has had a passive growth in the recent past is looking up and some good business opportunities are expected to come along the way. New investments in most of the other industries catered to by the company are flowing rapidly. The markets in Africa and Bangladesh have provided some business opportunities for edible oil processing equipment which would continue to surface in adequate measures.
The brewery industry which had been undergoing a consolidation phase for quite some time, has started looking for some major capacity expansion. Capacity additions and emergence of greenfield plants from the local as well as international players in the field augurs well for the company.
The food processing industry has seen good growth and is expected to continue its growth momentum with the ever increasing demand for food products. With the fruit processing industry and beverages looking for expansion and modernization, the company could look forward to some good business opportunities for its equipment.
The country's core sector comprising of crude oil refinery, steel, fertilizer and petrochemicals is growing rapidly and consequently the investments are rising. The company is looking forward to consolidate its strong presence on these industries through its innovative equipment. The adaptability provided by the company’s products is encouraging crude oil refineries to adopt innovative techniques towards improving the value addition of their products. Going by the \current trend, the other processing industries noised of chemical, metals, paper, starch etc., are looking to bolster their capacities which would afford the company, with strong reference points, to strengthen its foothold for a bigger share of the market.
The company has a strong presence in the Life Science market with some high quality process equipment like fermenters besides its separators and decanters for niche process applications. There is a spurt in investments by leading industrial houses to set up facilities for contract manufacturing in the bio-pharma sector in anticipation of business opportunities in the global markets for which the company in co-ordination with its Principals is in a position to offer sophisticated product lines. Going by the projected developments in these sectors, the company could bank upon its established presence for gathering sizeable business opportunities that could emerge.
The renewable energy sector comprising of fuel ethanol and bio-diesel is experiencing a strong interest. There is a strong call for increase in the supply of alternate fuels partly due to the volatility in crude oil prices and partly mandated by the Government legislation for a blend of ethanol with petrol. Though the co-operative sector has a larger base in terms of installed capacity, the uncertainties persist. However, with the private players evincing greater interest for setting up ethanol plants and looking at the related developments in South East Asian markets, the company’s established presence and its reference plants together with a better technology provide a good platform to exploit the opportunities emerging in this business.
The power sector will witness considerably large investments to bridge the gap between the demand and supply. It is, therefore, expected that this sector will see better growth and with that the resultant demand for the company’s products.
The company has some good products and process solutions for effluent treatment and other environment related applications. With the environmental issues gaining importance not only from a mere adherence point of view, the responsibility for protection of environment has come to the fore. The company’s decanters, as a part of the main plants, play a major role in the disposal of industrial wastes as well as in the sewage treatment with the installations finding their way up to the local municipality sites through the Contractors for disposal of wastes in a more efficient manner. The growth in this business has been encouraging and with the proposed introduction of newer decanter models carrying better features and a proven record, the company is hopeful of a sustained growth in this market segment.
Encouraging rise in order intake and order book
Riding on the investment momentum the company’s order intake during the year at Rs 773 crore (2006: Rs 656.1 crore) grew by 18%.
The company’s current order book position is at Rs 428.5 crore (up 33% y-o-y), which is quite sound and the company expects to maintain its performance on the order booking and sales revenues barring unforeseen circumstances.
Bigger role by ALIL in the global sourcing plans of its parent
Armed with increased manufacturing capacities and enhanced engineering capabilities, Alfa Laval India is hoping to gain a bigger piece of action in the global sourcing plans of its parent Alfa Laval, Sweden. Lars Renstrom, president and chief executive officer of the Ï 2.7 billion Alfa Laval, has said to the media that its Indian operations are showing high promise as suppliers of systems and components to the company's global sourcing process.
Renstrom said the Indian arm is already the single source for several parts that are needed for group companies across the globe. For parts such as high-speed decanters, India is one of the two suppliers to the global sourcing office, the other being Denmark, he said. "India is the largest exporter of parts and components to the Alfa Laval Group companies worldwide, ahead of China who is number two," he said, adding that exports from ALIL to group companies have grown three fold in the last two years.
Alfa Laval is focusing on life science application products as its new strategic area and is in the process of building modules, some of which will come to India, Renstrom said.
The company sees great scope in its three focus areas of environment management, energy management and conservation and food processing, he said.
The Company’s exports at Rs.263.80 crore in FY 2007 registered a growth of about 46% as compared to the previous year. Most of the exports are to the Europe and other non US-countries where it does not face any major slowdown fears. Moreover Indian rupee has depreciated against Euro even when it has appreciated against US $.
Outlook
To keep pace with the growing requirements, the company has been constantly engaged in expanding and modernising the manufacturing facilities as can be seen from the sizeable capital expenditure programme over the last 2 years and the one planned for the current year.
With a buoyant investment activity on the back of a growing economy, the flow of inquiries is robust but the company would continue to be selective in its order booking keeping in mind its prime objective of profitable growth.
Valuation
In FY 2008 (ending December), we expect the company to register sales and net profit of Rs 833.51 crore and Rs 109.92 crore respectively. On Equity of Rs 18.16 crore and face value of Rs 10 per share, EPS works out to Rs 60.5. The share price trades at Rs 939. P/E works out to just 15.5. Moreover, the current price of Rs 939 is at a steep 28% discount to the parent’s open offer price of Rs 1300 in June 2007 to hike its stake, which received only a partial success.
| | 0512 (12) | 0612 (12) | 0712 (12) | 0812 (12P) |
| Sales | 577.57 | 592.94 | 694.59 | 833.51 |
| OPM (%) | 16.7 | 17.2 | 18.1 | 18.4 |
| OP | 96.28 | 101.95 | 125.71 | 153.37 |
| Other Inc. | 10.26 | 13.24 | 18.70 | 20.00 |
| PBIDT | 106.54 | 115.19 | 144.41 | 173.37 |
| Interest | 0.67 | 0.70 | 0.53 | 0.53 |
| PBDT | 105.87 | 114.49 | 143.88 | 172.84 |
| Depreciation | 6.76 | 7.06 | 7.52 | 8.77 |
| PBT | 99.11 | 107.43 | 136.36 | 164.07 |
| Tax | 34.25 | 37.79 | 44.87 | 53.95 |
| PAT | 64.86 | 69.64 | 91.49 | 109.92 |
| EPS* (Rs) | 35.7 | 38.3 | 50.4 | 60.5 |
| * Annualised on current equity of Rs 18.16 crore. | ||||
| Alfa-Laval India: Results |
| | 0712 (3) | 0612 (3) | Var (%) | 0712 (12) | 0612 (12) | Var (%) |
| Sales | 203.06 | 161.96 | 25 | 694.59 | 592.94 | 17 |
| OPM (%) | 17.6 | 10.3 | | 18.1 | 17.2 | |
| OP | 35.68 | 16.71 | 114 | 125.71 | 101.95 | 23 |
| Other Inc. | 2.24 | 3.10 | -28 | 18.70 | 13.24 | 41 |
| PBIDT | 37.92 | 19.81 | 91 | 144.41 | 115.19 | 25 |
| Interest | 0.27 | 0.18 | 50 | 0.53 | 0.70 | -24 |
| PBDT | 37.65 | 19.63 | 92 | 143.88 | 114.49 | 26 |
| Depreciation | 2.18 | 1.76 | 24 | 7.52 | 7.06 | 7 |
| PBT | 35.47 | 17.87 | 98 | 136.36 | 107.43 | 27 |
| Tax | 13.78 | 6.01 | 129 | 45.68 | 37.98 | 20 |
| Deferred Tax | -1.80 | 0.80 | -325 | -0.81 | -0.19 | 326 |
| PAT | 23.49 | 11.06 | 112 | 91.49 | 69.64 | 31 |
| EPS* (Rs) | 51.7 | 24.4 | | 50.4 | 38.3 | |
| * Annualised on current equity of Rs 18.16 crore. | ||||||
| Alfa-Laval India: Segment results |
| Sales | 0712 (3) | 0612 (3) | Var. (%) | % to total | 0712 (12) | 0612 (12) | Var. (%) | % to total |
| Equipment Division | 103.22 | 72.44 | 42 | 50 | 339.91 | 241.93 | 40 | 49 |
| Process Technology Division | 102.68 | 89.36 | 15 | 50 | 353.16 | 349.97 | 1 | 51 |
| Total | 205.90 | 161.80 | 27 | 100 | 693.07 | 591.90 | 17 | 100 |
| less: Inter segment | 1.58 | 0.58 | | | 0.38 | 0.21 | | |
| Net sales | 204.32 | 161.22 | | | 692.69 | 591.69 | | |
| PBIT | | | | | | | | |
| Equipment Division | 17.34 | 13.80 | 26 | 44 | 61.12 | 55.12 | 11 | 44 |
| Process Technology Division | 22.40 | 5.14 | 336 | 56 | 76.95 | 53.99 | 43 | 56 |
| PBIT | 39.74 | 18.94 | 110 | 100 | 138.07 | 109.11 | 27 | 100 |
| less: Interest | 0.27 | 0.18 | | | 0.53 | 0.70 | | |
| Add: Other unallocable expenses | 4.00 | 0.89 | | | 1.17 | 0.99 | | |
| PBT | 35.47 | 17.87 | | | 136.37 | 107.43 | | |
| Capital Employed | | | | | | | | |
| Equipment Division | 184.88 | 121.49 | 52 | 67 | 184.88 | 121.49 | 52 | 67 |
| Process Technology Division | 89.12 | 81.59 | 9 | 33 | 89.12 | 81.59 | 9 | 33 |
| Total | 274.00 | 203.08 | 35 | 100 | 274.00 | 203.08 | 35 | 100 |
| Add: Other unallocable CE | 14.97 | 35.05 | | | 14.97 | 35.05 | | |
| Total CE | 288.97 | 238.13 | | | 288.97 | 238.13 | | |
| Figures Rs in crore | ||||||||
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