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Tuesday, March 23, 2010

ELGI Equipments - Small Cap Stock Analysis

ELGI equipments is one of the largest player and a manufacturer of air compressors and automobile service station equipments.

ELGI's products are used in a wide range of applications in areas ranging from mining, defense, transport, pharmaceuticals, power, oil, railways, chemicals, textiles, printing to ship building, paper, electronics, telecommunications, medical, food & beverages and plastics.

The company has been keen in pursuing new business opportunities and has been highly adaptable to new technologies. ELGI already leads India in compressor technology and is a prominent player in Automotive Service Station Equipment. Engines and ELGI New Generation Compressors (low range reciprocating compressors) are today emerging as new business sectors for the company.

ELGI's global presence has been a result of international customers recognizing ELGI as a purveyor of technologically superior products. ELGI's success in the international market is further evidenced by the fact that a large portion of the international business comes from repeat sales to established customers. Today ELGI has a presence in all the major markets across the world covering Europe, North America, Latin America, Africa, Australia, Middle East, South East Asia, West Asia and the Far East.

Elgi is the market leader in air compressors (over 10 per cent) as well as automobile service station equipment and is also among the larger players in Asia. ELGI caters to the needs of various business segments and this extent of diversification has allowed Elgi to keep up growth momentum. Elgi has utilised the slowdown period to test grounds and ramp up presence in the Brazilian and Chinese markets. In Brazil, where the company's products have for long had takers, the company has set up a wholly-owned subsidiary as a trading unit.

ELGI also has a manufacturing plant in China and has trading presence. There is a very good scope for ELGI's products in China due to the huge size of China's manufacturing capacity. However, the development in China and Brazil could take sizable amount of time to make reasonable contributions to the bottom line. Elgi products' application in the oil sector has also given it a market in West Asia.

Market Cap 695.09
* EPS (TTM) 6.86
* P/E 12.97
* P/C 11.31
* Book Value 25.40
* Price/Book 3.50
Div(%) 130.00
Div Yield(%) 1.46
Market Lot 1.00
Face Value 1.00
Industry P/E 19.47
* as per latest stock financials

Elgi' sales grew at 20 per cent compounded annually (to Rs 595 crore in FY-09) over the last three years, while profits expanded by 25 per cent over this period. Operating profit margins, though healthy at 12 per cent levels, could come under pressure as a result of hike in cost of steel and copper.

It's an small cap stock for long term investment portfolio at current stock valuations.

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