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SYNOPSIS
We initiated coverage of Hercules
Hoists and set a target price of Rs.
322.00 for Medium term Investment.
Hercules Hoists, a part of the Bajaj
group, one of the India’s prime
business houses was established in
1962 is a manufacturer of material-
handling equipment.
During the quarter ended, the robust
growth of Net Profit is increased by
27.33% to Rs. 72.64 million.
The ISO 9001:2000 certified company
& has a modern manufacturing facility
in Mumbai equipped with an up-to-
date machine shop and rows of
assembly lines and testing equipment.
Net Sales and PAT of the company are
expected to grow at a CAGR of 18% and
29% over 2010 to 2013E respectively.
Years Net sales EBITDA Net Profit EPS P/E
FY 11 1210.12 460.49 299.10 18.69 15.26
FY 12E 1274.85 490.30 329.53 20.60 13.85
FY 13E 1402.34 541.66 366.56 22.91 12.45
Stock Data:
Sector: Engineering
Face Value Rs. 1.00
52 wk. High/Low (Rs.) 371.00/190.55
Volume (2 wk. Avg.) 125000
BSE Code 505720
Market Cap (Rs in mn) 4564.00
Share Holding Pattern
1 Year Comparative Graph
Hercules Hoists BSE SENSEX
C.M.P: Rs. 285.25 Target Price: Rs. 322.00 Date: Mar. 19th 2012 BUY
Hercules Hoists Ltd Result Update: Q3 FY 12
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Peer Group Comparison
Name of the company CMP(Rs.) Market Cap. (Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)
Hercules Hoists 285.25 4564.00 18.69 15.26 4.02 300.00
Container Corp. 887.00 11529.47 65.56 13.53 2.32 155.00
TIL 267.95 268.76 53.47 5.01 1.25 60.00
Sanco Trans 236.05 42.49 51.10 4.62 0.51 27.00
Investment Highlights
Q3 FY12 Results Update
Hercules Hoists Ltd. has reported net profit of Rs 72.64 million for the quarter
ended on December 31, 2011 as against Rs. 57.05 million in the same quarter last
year, an increase of 27.33%. It has reported net sales of Rs 297.11 million for the
quarter ended on December 31, 2011 as against Rs 275.23 million in the same
quarter last year, a rise of 7.95%. Total income grew by 12.38% to Rs 315.26
million from Rs. 280.52 million in the same quarter last year. During the quarter,
it reported earnings of Rs 4.54 a share.
Quarterly Results - Standalone (Rs in mn)
As At Dec-11 Dec-10 %change
Net sales 297.11 275.23 7.95%
PAT 72.64 57.05 27.33%
Basic EPS 4.54 3.57 27.33%
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Break up of Expenditure
Company Profile
Hercules Hoists, a part of the Bajaj group, one of the India’s prime business houses
was established in 1962 is a manufacturer of material-handling equipment. It has a
diverse product range that encompasses chain pulley blocks, electric hoists, cranes,
etc. that fulfills the storage, retrieval and material handling needs of companies
around the world.
The ISO 9001:2000 certified company offers products including chain pulley blocks,
wire rope hoists, trolleys, chain electric hoists, EOT/HOT cranes, light profile crane
systems, stacker cranes, lever hoists, winches and roll out racks. It has a modern
manufacturing facility in Mumbai equipped with an up-to-date machine shop and
rows of assembly lines and testing equipment.
HHL has set up a sprawling factory at Mulund, Mumbai where it manufactures its
range of products. It utilizes a state-of-the-art machine shop, ultra modern assembly
lines and accurate testing equipment. With a workforce of over one hundred workmen
and 87 staff comprising officers and engineers, the company enforces strict quality
control at every stage of the manufacturing process - right from selection of raw
material to the inspection of the finished product.
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Towards the goal of reaching a global market, Hercules Hoists Ltd. has specially set up
a marketing division, headed by general manager- marketing and supported by
business facilitators’ station at strategic locations for direct interaction with
customers. Its products are now marketed through out India by 45 authorized
marketing associates and network of dealers, representatives and liaison agents. It
registered sales of nearly Rs. 300 million for the current financial year, making it the
undisputed No. 1 brand with the largest market share. The company has also made its
mark on the global scene by supplying material handling equipment to European,
Middle East, Africa and South East Asian Countries.
The company sells its products under the brand name Indef. The whole range of
INDEF material handling equipment manufactured by Hercules Hoists Limited. The
marketing division has a network of 45 authorized marketing associates, 100 dealers,
service agents and liaison agents across India. It has appointed business facilitators at
several strategic locations to facilitate business transactions and to estimate customer
application needs. The client list includes state electricity boards like MESB and
BSES; automobile majors like Telco and Mahindra & Mahindra; steel plants like
Bokaro and TISCO; and cement companies like L&T and ACC and several others.
Products
Products range of the company includes:
• Chain Pulley Block
• Chain Electric Hoist
• Wire Rope Hoist
• Trolleys
• EOT /HOT Cranes
• Light Profile Crane Systems
• Stacker Cranes
• Lever Hoists
• Roll Out Racks
• Winch
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Financial Results
12 Months Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) FY10 FY11 FY12E FY13E
Description 12m 12m 12m 12m
Net Sales 860.67 1210.12 1274.85 1402.34
Other Income 33.12 31.76 69.17 76.09
Total Income 893.79 1241.88 1344.02 1478.42
Expenditure -628.02 -781.39 -853.72 -936.76
Operating Profit 265.77 460.49 490.30 541.66
Interest -3.92 -2.08 -0.61 -0.64
Gross profit 261.85 458.41 489.68 541.02
Depreciation -19.70 -20.27 -20.46 -21.08
Profit Before Tax 242.15 438.14 469.22 519.94
Tax -72.07 -139.04 -139.70 -153.38
Profit After Tax 170.08 299.10 329.53 366.56
Extraordinary Items -26.16 0.00 0.00 0.00
Net Profit 143.92 299.10 329.53 366.56
Equity capital 16.00 16.00 16.00 16.00
Reserves 875.37 1118.68 1448.21 1814.77
Face value 1.00 1.00 1.00 1.00
EPS 9.00 18.69 20.60 22.91
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Quarterly Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) 30-Jun-11 30-Sep-11 31-Dec-11 31-Mar-12E
Description 3m 3m 3m 3m
Net sales 302.19 319.02 297.11 356.53
Other income 6.66 24.94 18.15 19.42
Total Income 308.85 343.96 315.26 375.95
Expenditure -193.18 -222.63 -200.82 -237.09
Operating profit 115.67 121.33 114.44 138.86
Interest -0.27 -0.18 -0.08 -0.08
Gross profit 115.40 121.15 114.36 138.77
Depreciation -5.02 -5.08 -5.13 -5.23
Profit Before Tax 110.38 116.07 109.23 133.54
Tax -33.28 -29.63 -36.59 -40.20
Profit After Tax 77.10 86.44 72.64 93.35
Extraordinary Items 0.00 0.00 0.00 0.00
Net Profit 77.10 86.44 72.64 93.35
Equity capital 16.00 16.00 16.00 16.00
Face value 1.00 1.00 1.00 1.00
EPS 4.82 5.40 4.54 5.83
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Key Ratios
Particulars FY10 FY11 FY12E FY13E
No. of Shares(in mn) 16.00 16.00 16.00 16.00
EBITDA Margin (%) 30.88% 38.05% 38.46% 38.63%
PBT Margin (%) 28.14% 36.21% 36.81% 37.08%
PAT Margin (%) 19.76% 24.72% 25.85% 26.14%
P/E Ratio (x) 31.71 15.26 13.85 12.45
ROE (%) 19.08% 26.36% 22.51% 20.02%
ROCE (%) 30.66% 41.72% 34.45% 30.41%
Debt Equity Ratio 0.04 0.02 0.01 0.01
EV/EBITDA (x) 17.17 9.91 9.31 8.43
Book Value (Rs.) 55.71 70.92 91.51 114.42
P/BV 5.12 4.02 3.12 2.49
Charts:
Net Sales & PAT
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P/E Ratio(x)
Debt Equity Ratio
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EV/EBITDA(x)
P/BV
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Outlook and Conclusion
At the current market price of Rs.285.25, the stock is trading at 13.85 x FY12E
and 12.45 x FY13E respectively.
Earning per share (EPS) of the company for the earnings for FY12E and FY13E
is seen at Rs. 20.60 and Rs. 22.91 respectively.
Net Sales and PAT of the company are expected to grow at a CAGR of 18% and
29% over 2010 to 2013E respectively.
On the basis of EV/EBITDA, the stock trades at 9.31 x for FY12E and 8.43 x for
FY13E.
Price to Book Value of the stock is expected to be at 3.12 x and 2.49 x
respectively for FY12E and FY13E.
We expect that the company will keep its growth story in the coming quarters
also. We recommend ‘BUY’ in this particular scrip with a target price of
Rs.322.00 for Medium to Long term investment.
Industry Overview
The Engineering sector is diverse, comprising a number of segments. However, it can
be broadly categorised into two segments- heavy engineering and light engineering.
The Indian engineering industry is relatively less fragmented at the higher-end, as the
competencies needed are intense, while it is highly scattered at the lower levels and is
dominated by smaller players.
Along with basic engineering industry, engineering services outsourcing (ESO) and
designing have also developed exponentially over the last few years in India. Moreover,
India is ranked first in the field of Engineering Research and Development and Design
(ER&D) outsourcing industry with a 22 per cent share in the revenue globally.
Some of the recent developments that took place in Indian engineering and design
industry are discussed hereafter.
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Exports
Engineering exports include transport equipment, capital goods, other machinery
/equipment and light engineering products like castings, forgings and fasteners.
Going by the data compiled by the Engineering Export Promotion Council (EEPC), the
apex body of engineering exporters, engineering consignments for the month of
September 2011 stood at US$ 7.1 billion. By far in 2010-11, engineering goods have
been the largest contributor (with US$ 60 billion worth of consignments) to the total
Indian exports of US$ 245.9 billion. Engineering exports for the period April-August
2011 had increased by 125 per cent, aggregating to US$ 40 billion.
Design & Engineering- Key Developments
• Bearings maker SKF India is planning for a capacity expansion at its
manufacturing unit in Ahmedabad. The unit would majorly cater to sectors like
renewable energy, construction and railways.
Also the company, with 27 per cent market share in organised bearings
manufacturing sector in India, has recently inaugurated its global technical centre in
Bengaluru. The facility plans to hire 400 engineers by 2015 and entail an investment
of Rs 50 crore (US$ 9.52 million) for its development.
• Pune is increasingly emerging as Asia's innovation hub. The city boasts of 124
software product start-up companies, 112 top global research and development
(R&D) centres, 24, 000 talented people dealing with various projects, 17 special
economic zones (SEZs) and information technology (IT) parks, 18 IT-business
process outsourcing (BPO) SEZs and over 40 engineering colleges.
Pune nurtures over 12, 000 engineering graduates every year and the number is
further expected to swell as more colleges are coming up. Automotive engineering and
enterprise software product engineering are key areas of strength within the entire
industry ecosystem for Pune.
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• The Indian unit of Germany's Siemens AG - Siemens Ltd, will venture into
engineering, procurement and construction (EPC) solutions business for solar
photovoltaic plants in India. The company recognizes India as one of the fastest
growing renewable energy markets globally and hence, aims to tap the
opportunity.
Design & Engineering- Major Investments
• The miscellaneous mechanical and engineering industries' sector-wise foreign
direct investments (FDI) inflows from April 2000 to September 2011 was
calculated at US$ 2, 134.21 million, as per the Department of Industrial Policy
and Promotion (DIPP).
• The hydraulics business of Wipro and Kawasaki Heavy Industries - Wipro
Infrastructure Engineering – will entail an outlay of Rs 50 crore (US$ 9.52
million) to set up a facility in Bangalore that would manufacture hydraulic
pumps for excavators. The joint venture (JV), namely Wipro Kawasaki Precision
Machinery, will have a start-up capacity of 4, 000 pumps which would be
expanded to 15, 000 pumps by 2015.
The Indian Forging Industry
The Indian Forging industry is mushrooming as a major contributor to the
manufacturing sector of the Indian economy. Forging industry is a basic industry and
involves the process by which metal is heated and is given a particular shape through
plastic deformation by applying a compressive force. Usually the compressive force is
in the form of hammer blows using a power hammer or a press.
Growth of such basic industries is directly proportional to a country's GDP growth.
And since India's GDP is fairly estimated to grow in the coming years, forging industry
is also anticipated to grow accordingly. In the light of this fact, the Association of
Indian Forging Industry (AIFI) has projected that the Indian forging industry is set to
enhance by over 20 per cent per annum and attract investments of about US$ 3
billion by 2015 for capacity expansion.
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As of now, the Rs 15, 000 crore (US$ 2.85 billion)-industry gets 70 per cent of its
business from automotive sector. Moreover, Deven Joshi, President, AIFI, has revealed
that the overall production of forgings increased from 1.8 million tonnes in 2009-2010
to 2.3 million tonnes during the year ended March 31, 2011, registering a growth rate
of more than 28 per cent. This is predicted to grow further to 4 million tonnes by
2014.
Government Initiatives
Road Ahead
Indian ER&D service industry has been quite instrumental in establishing India as a
design and innovation hub by speeding-up innovation and application. Experts believe
that this kind of exponential growth will make India one of the major global players
with better domain capabilities and establish the country as a pioneer in the ER&D
space.
On the similar lines, NASSCOM anticipates that the market for ER&D services would
increase by over four times to touch US$ 40-US$ 45 billion by 2020.
______________ ____ _________________________ Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
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