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Thursday, January 3, 2008

ITL Industry:-The undervalued smallcap for your portfolio

"Weekly mail of 23rd december to members"

Covered the company a number of times over the last several months but it never delivered as per its potential.With better outlook and immense potential the scrip may just perform big time in the days to come.


Scripscan=ITL Industry
BSE code:522183
CMP=63
Target=96
Return expected:52%+
Duration=5-7 months.


Introduction=ITL is an established leading metal cutting solution provider offering wide range of machines,tools and cuting lubricants.ITL has been the pioneer in introducing India;s first double column type metal cutting machinein the year 1990 and since then, ITL has supplied more than 2000 machines across the country and global markets.

ITL has started designing and manufacturing of complete turnkey projects as well as equipments for production of tube and pipes which includes tubes mills, draw benches,straightning machines etc, Which are neccesary for production of ERW, Seamless pipes and stainless pipes.ITL developed and manufactured India's first high speed CNC circular sawing machines and the same has been well accepted by most of the engineering industries.It is a perfect solution for cutting requirements of most of the automotive component manufactures and its expected that in times to come, they will shift from conventional cutting machines to circular sawing machines because of their higher productivity and high degree of automotion along with quality cuts.

For FY07, Company had acheived sales of 22 CRS with a NP of 1.32crs. On equity of 3.30 CRS., EPS stood at 4.ITL's profits were not high because steel prices had gone up substantially over last 2 years.The company had undertaken export orders based on the then prevailing steel prices at low margins to enter the export market. With surge in steel prices, Its margins were effected.Now the company has been succesful in putting price escalation clause into its contracts resulting in better margins.

Future Prospects=The engineetring industry in India is on an upswing on the back of huge demand from the contruction,infrastructure and capital goods sector. This has resulted in an increase in the demand for metal cutting machines.

ITL is well placed to take advantage ofthis oppurtunity as its a leader in high speed sawing technology and is in the process of establishing itself in the domestic and global markets as an innovative and reliable "Cutting solution provider".It would be prudent to note that there are 9 Engineering,2 Polytechnic and 3 ITI colleges at Indore, Thereby giving the company a locational advantage to attract new talent.

Wide Product Range: Itl has a wide product range in metal cutting solutions.The company offers 60 different models of brandsaw machines ranging from 100 MM TO 1,500 MM cutting capacity with Manual, Semi Automatic, Automatic and fourth generation CNC machines. On the back of its technical tie up with a German company ,ITL manufactures 3 models of Kato Sawing machines with cutting capacities of 250 MM and 400 MM diameter in India as per KLasto technology.

Further, ITL is the hub fortube technology for leading manufactures.With technical know-how from varios Mnc, Itl offers state of art equipment crafted by a highly experienced technical team.Its tube mills have acapacity of making 20 inch diameter tubes/pipes.

All this makes ITL a Pioneer in cutting technology and also places it at an advantage over it peers,Thus ITL is best positioned to capitalize on the demand arising from the tube and pipe manufacturing sector.

The company has represntatives in U.S.A. and Germany, which helps it to maintain relationship with its exisiting customers and also acquire new customers.It is beleived that ITL has appointed dealers in some of european as well as african countries to capture a larger pie of the export market.It completed its modernisation and expansion project with a capex of Rs.2.5 cr. and has also acquired land in the SEZ in Pithampur for meeting global opportunities.Notably,its orders in hand is at a historic high with more than Rs.20 crs. due to the good demand for tube & pipe manufacturing machines along with its recently launched circular saw machine.

For H1FY08, ITL has acheived sales of rs 15.5 CRS. and the PAT stands at 1.05 lakhs.Due to nature of its business,Company reports higher performance in H2. ITL IS EXPECTED TO ACHIEVE SALES OF RS. 40-42 CRS. AND NP OF RS. 2.65 CRS. WHICH WILL TRANSLATE INTO EPS OF 8.

The company has got a good dividend payout ratio and over the last 6 years it has consistently rewarded the shareholders with rich dividends.With the company expected to come out with much higher profits the company may just put a hike in its dividend ratio.

ITL is available at extremly low valuations.Considering high valuations enjoyed by engineering companies these days.The scrips like Gei Hamon, Petron eng, International Combustion E.t.c. are quoting at PE ratio of 12-25 times.With growth in size, ITL IS BOUND TO HAVE MUCH HIGHER VALUATIONS.The stock is currently traded at 17x FY2007 earnings.I strongly recommend BUY on the stock with target price of Rs 96 for the stock,at 12x FY2008E earnings (EPS Rs 8x12).



Regards,
ARUN
I can be reached at:-arunanalyst@rediffmail.com

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