MultiBagger: Texmaco Ltd

MultiBagger: Texmaco Ltd

Recommended Price Rs 1279.15

S.P.Tulsian, Investment Advisor

Report Dated: August 19, 2008

Texmaco Ltd. is a K. K. Birla Group company engaged in making Railway Freight Cars, Hydro Mechanical Equipments & Steel Structures, Process Equipment, Agro Machinery and Steel Foundry. The company has signed a Memorandum of Agreement with United Group Rail Services Ltd. of Australia to tap the opportunities of Indian Railways Development Programme for projects including the Dedicated Freight Corridor, design and manufacture and supply of wagons, locomotives bogies and components and encompass passenger rolling stock.

The company has posted exemplary results for FY 08 with total income of Rs 705 crores. This does not include the value of free materials of Rs 205 crores provided to the company by the Indian Railways and other clients for major contracts. PBT for FY 08 was placed at Rs 100 crores while PAT was at Rs 69.50 crores resulting in an EPS of Rs 62.25. A dividend of 75% was paid by the company
for the year. Paid-up equity of the company is Rs 11.08 crores with face value of Rs 10. Promoters stake in the company is at 56% while 22% is held by Mutual Funds Insurance Companies and FIIs and 22% by the public. The board of the company has recently proposed to split face value of share from Rs 10 to Re 1.

The company has received an order of Rs 296 crore from NHPC for Hydro Mechanical Equipment as also an order of Rs 187 crores from Indian Railways for Container Freight Wagons. Indian Railways Wagon Tenders for 15,348 wagons for 2008 – 09 have been opened and orders are expected to be released shortly, of which, the company is likely to bag atleast 50% of the orders. For quarter ending 30th June 08, the topline of the company was at Rs 198 crores against Rs 143 crores in the similar quarter of the previous year. PBT for the quarter was at Rs 32.28 crores (Rs 16.53 crores) while PAT rose to Rs 22.82 crores from Rs 11.37 crores. The quarter had witnessed robust increase in the margins which is almost 100% higher, inspite of rise in topline by just 38%.

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The company, always have excellent results for March quarter due to higher dispatch of Wagons to Railways. For FY 09, the company should be able to achieve a topline of Rs 1,000 crores with PBT of Rs 160 crores and PAT of Rs 110 crores, which should result in an EPS of Rs 100 for the year. The company has decided to transfer its Heavy Engineering Division to a newly formed subsidiary, in order to raise resources. This division gives almost 80% to the company’s topline, while 75% to the bottomline. This would definitely enable the company to expand in other area, as also to induct a technology partner in this subsidiary to capitalize on booming Railway Sector. The company is presently a debt free, as its debt of about Rs 40 crores, is mainly to finance its working capital.

The company is a leader in supply of Railway Wagons and recently launched scheme by Indian Railways of Own Your Wagons Scheme is giving good Demand and lucrative orders to the company. Over the next 3 – 5 years, due to huge demand of Railway Wagons, the company should be able to have 25% growth annually, in its topline and over 40% growth in bottomline, for the next 3 years. Share would go with face value of Re 1 in the next couple of months, and hence on split basis would be preferred more by the investors, thus leaving good scope for the share price to rise.

Share now ruling at Rs 1279.15, had its 52 week high/low of Rs 1,965 and Rs 950 and has all the potential to rise to Rs 200, post split to Re 1, in the next 8 – 10 months. A safe bet at Rs 1279.15 levels for Rs 10 face value for a return of almost 50% in less than one year.