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Thursday, September 25, 2008

CMI FPE Limited:-New management set to do wonder

Scripscan:CMI FPE Limited(Flat Products Equipments)
cmp:450
Traded in:Bse

Recently attended the annual meet of the company here is what I gathered:-

Story:The companys order position is very healthy and all the workshops are fully booked for nextseveral months.The company expects profit margins to improve in times to come as a result of rationalization of manufacturing processes and through valueengineering.Despite the volatility in the global markets, the management remains positive on the long term outlook for the steel industry and expects robust order inflows inthe coming years.The outstanding order book position as on the day of the AGM stood at Rs8.48bn and revenues year to date in FY09 has been Rs2.55bn. (This suggests that therevenues for the company would be significantly higher at around Rs 1.5bn inQ2FY09 as compared to Rs1.16bn in Q1FY09).As CMI does not have its own manufacturing facilities for the steel equipment business and operates only through outsourcing model, it is likely to undertake significant outsourcing through CMIFPE given is low cost manufacturing base and designing capabilities. In fact, within three months of taking control, orders from Brazil and North America have been contracted to CMI FPE.Further, the management categorically stated that net profit margins of CMI FPE would be better than CMI, which stands at 4%.CMIFPE is trying to incorporate escalation clauses in some of its orders so as protect its margins in the environment of a significant volatility in prices ofcommodities.Despite huge investments being planned for the near future to enhance capacity,the company will have a dividend payout of 25-30%.While there are no other listed entities in the CMI Group, its intention is to keep CMI FPE listed and categorically stated that it would not pursue for delisting.The CMI Groupe, the parent has been very aggressive in pursuing growth that is clearly reflected from the five fold increase in its order book position from €176mn to over €1bn in CY0.At present prices the company merits an investment.


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

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