Lloyd Electric & Engineering Ltd (LEEL), BSE: 517518,NSE: LLOYDELENG
Market Cap = 238 cr
Book Value = 130, P/B = 0.6
LEEL is largest makers of air-conditioner heat exchanger coils in India. The company is OEM supplier to almost all AC manufacturers in India, and have overseas business of approximately 20% of sales.
Its main products are:
- Heat Exchangers
- Rail Coach ACs
- Window/Split ACs
- Bhiwadi, Rajasthan
- Kala Amb, Himachal Pradesh
- Blue Star
- Indian Railways
The company has started manufacturing large ACs for MNC companies since late last year. They are mainly catering to the large (10-15 ton) category, specially in the transport sector. That is ACs for buses and railways. It has bagged orders for Metro Rail ACs. This might actually give the earnings a boost in the future are more and more metros become operational.
I got attracted by the promoter buying and by the fact that it is going at a 8 PE as opposed to 18-20 PE of Hitachi/Blue Star. Not that I am comparing Blue Star with Lloyd, they are not in the same league, but I think Lloyd can be a case of PE re-rating to atleast 10. Also, its BV is 130 and its trading at nearly 40% discount to book, which I am not sure is warranted.
The negatives in the company are:
- Consistent negative cash flow for the last three years
- Very poor return on capital ratios (RoCE=10%, RoE=8.7%)
- OPM of 10% and NPM of 5%
With a expected year end EPS of 12-13 and a PE of 10, I am expecting a 6 month target of around 120-130. In fact, I would really expect it to catch up to its book value of 130 (for comparison, Blue Star has a P/B of nearly 8).
Also, interestingly, it has not really fallen below the 70 mark in the last few months. That added to promoter buying makes me pretty confident that the downside risk is fairly limited here.