IVRCL (CMP: Rs331)
Mkt Cap: Rs44bn; US$961m Bloomberg code (IVRC IN)
Event:Hindustan Dorr Oliver (HDOL) owned 55% by IVRCL has acquired 100% stake in DavyMarkham, a UK based heavy engineering company. The acquisition price paid by HDOL is ₤9.5m for 100% stake which includes ₤8.5m towards equity and ₤1mn towards shareholder loan. HDOL plans to fund the acquisition through internal accruals and debt.
About DavyMarkham:
DavyMarkham, based in Sheffield, UK is involved in the design, manufacture and assembly of large equipment used in the mining, quarrying, power generation, oil & gas and nuclear sectors. Some of the company's offerings include tunnelling and mine hoisting equipment besides machining of individual components weighing up to 350 tonnes. The company caters extensively to both the UK and the international markets spanning the North American, European and the Asian Regions. The company has the capability of designing equipment for a variety of environments - from extremely cold weather on one hand to tropical temperatures on the other hand. It is currently working on a mining contract wherein it will design, manufacture and install one of the largest and deepest mine hoists in North America.
About Hindustan Dorr Oliver (HDOL):
Hindustan Dorr Oliver (HDOL) is a 55% owned subsidiary of IVRCL and is engaged in Engineering Solutions, Technologies and EPC installations in Liquid-Solid Separation applications. Its key business divisions are EPC, Manufacturing and Knowledge Process Outsourcing. In the EPC business it has specializes in segments such as Mineral Processing, Environment, Fertilizers & Chemicals and Pulp & Paper. In the manufacturing division it manufactures its proprietary equipment and products for the Hydrocarbon sector. HDOL had revenues of Rs5.13bn and PAT of Rs302mn in FY09. The current market cap of HDOL is Rs7.1bn.
Financials:
DavyMarkham had revenue of ₤20m and EBIDTA of ₤1.3m with PAT of ~₤1.2m in CY09. The company currently has an order book of ₤13m in mining and power sectors mainly for customers in the North American and the European region. The acquisition price of ₤9.5mn implies P/E of ~8x. HDOL plans to fund the acquisition by using the cash on books and by assuming additional debt. As on March 31st 2009, HDOL had debt of Rs156m, cash balance of Rs247m and net worth of Rs1.75bn implying a very strong and underleveraged balance sheet.
Our view:
The acquisition of DavyMarkham provides HDOL an entry into the Heavy Engineering space with strong design and manufacturing capabilities and an international reach. The acquisition also provides HDOL an opportunity to expand its product portfolio in India in its traditional segments as well as gain foothold into newer segments. DavyMarkham's Managing Director, Kevin Parkin and Financial Director, Duncan Hay, would continue in their current roles along with other members of the management team. Further, HDOL is also exploring setting up ESOP schemes/management share scheme going forward for DavyMarkham' employees. In summary we believe the acquisition is positive for HDOL and in turn for IVRCL. We maintain our Outperformer rating on IVRCL with a price target of Rs405.
| Key financials* (standalone) | |||||
| As on 31 March | Mar-07 | Mar-08 | Mar-09 | Mar 10E | Mar 11E |
| Net sales (Rs m) | 23,465 | 36,981 | 49,831 | 54,647 | 65,532 |
| Adj. net profit (Rs m) | 1,415 | 2,187 | 2,279 | 2,193 | 2,841 |
| Shares in issue (m) | 130 | 130 | 134 | 134 | 134 |
| Adj. EPS (Rs) | 12.5 | 16.9 | 16.9 | 16.4 | 21.3 |
| % change | 42.5 | 35 | 0.3 | -2.9 | 29.5 |
| PE (x) | 14.5 | 10.8 | 10.7 | 11.1 | 8.5 |
| Price/ Book (x) | 1.6 | 1.5 | 1.4 | 1.2 | 0.9 |
| EV/ EBITDA (x) | 10.5 | 8 | 7.9 | 6.9 | 5.3 |
| RoE (%) | 15.7 | 14.9 | 13.3 | 11.5 | 12.4 |
| RoCE (%) | 13.7 | 14.4 | 12.7 | 12.7 | 13.4 |
* - price adjusted for valuation of proportional stake in HDOL and IVR Prime | |||||
Please let us know if you require any further details.
Warm Regards,
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