Scripscan:D&H Welding Electrodes(India) Ltd.
BSE Code:517514
Cmp:18
Story:Founded in 1991 as a private limited company, D&H Welding Electrodes Ltd. (hereafter referred to as D&H) is an Indore based company into manufacturing of welding electrodes. Besides Electrodes, the company is also into the manufacturing of Fluxes and wires, Co2 wires.Welding Ind is a proxy to the general economic conditions prevailing in the country. With the GDP growth expected to log in 8-9% in the immediate future, industrial activity is experiencing a quantum shift in terms of performance and prospects. This is creating a tremendous scope for growth in the welding ind., which forms a critical input into engineering and project - related inds.The critical parameter in this ind. is the approval from the project executing giants and companies and each product requires a separate approval. Thus, the magnitude of entry barrier faced either by a new corner or by a player wanting to expand its client base is quite obvious.Its offices are located in cities attached to prime industrial belts - Kanpur, Chandigarh, Chennai, Bilaspur, Vadodara, Hyderabad and Bangalore, besides the ones at Mumbai and Indore. The current client list includes various ordnance factories, established Central and State PSUs such as BHEL, BEML, NTPC and NHDC, Cement Plants (ACC, JP, Grasim etc.) and Project Contractors. The Company has created this client base through the replacement route - getting a foot in the door when the two established majors(Esab and ador welding) are not able to supply on an immediate basis - a getting repeat orders on quality approval for its products.Company is confident of maintaining excellent growth for next 3 years. D&H is only in consumables segment and does not manufacture welding machines etc.(in case of Ador, Esab, nearly 40% turnover comes from welding equipments).In terms of quality, technology and range of welding consumables, D&H is at par with Ador and Esab.Company is likely to achieve sales of 75 crs. and NP of 4.3 crs. for fy11-12.Stock is trading at less than 3x FY12E EPS.This is lowest P.E. Ratio in the Industry.Bigger companies like Esab and Ador have discounting of 8-12 times.Of course,bigger companies will enjoy little higher valuations.But,considering ind. average, D&H is available extremely cheap, mainly due to low promoter profile and investor ignorance about potential of the company.Due to robust industrial demand, welding industry will continue to do well.Smaller players like D&H will have growth rate much higher than ind average.Gradually,P.E. expansion is bound to take place in case of D&H.Company will go for further expansion after 6-9 months in order to maintain similar growth rate for next 3-5 years.Altogether a scrip worth looking at for the medium to longer term perspective.
Monday, May 2, 2011
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