Rishi Lasers - Good Long Term Investment

Rishi Lasers (Rs.67.35) is moving from a flat steel part supplier towards becoming a fabrication subcontractor. A substantial portion of the fabrications and assemblies are for the Construction Equipment industry and manufacturers of electricals & power sector equipments. This sector is growing at 40% annually. With infrastructure spending expected at Rs.15,00,000 cr. in the 11th Five Year Plan (April 2007 – March 2012), the order book of every major infrastructure equipment supplier is growing massively

. It has 10 plants spread over 5 states. It has 15 Laser Cutting Machines (LCM), 13 Press Brakes and 2 Turret Punch Presses. CNC LCMs are used to cut material such as mild steel, stainless steel and aluminium in a very economical and fast manner. It provides accuracy and encourages designers to design any intricate shape.

In FY08, the company had focused on the fast growing Construction Equipment industry as the supply to this industry constitutes 41% of total sales. The company is supplying to JCB, L&T Case Ltd., Caterpillar India, Ingersoll Rand and BEML all of whom are manufacturers of Earthmoving machinery.

Rishi Lazer took up expansion of its Bangalore unit to double capacity, which will be completed in the near future. It has installed a 5 Axis Laser Cutting Systems of 'Prima' make to cater to the prototype needs of the automotive sector, which will increase its sales the automotive sector constitutes 17% of its total sales. The company is planning to enhance sales to the Electricals & Power sector equipment from 9% to 25% over the next 2 years.

Large investments are expected to be made in the railways and metros. The company has orders for parts & assemblies for metro coaches, which will commence in FY09 and is likely to grow sharply from next year onwards. For FY08, its exports shot up from Rs.0.74 cr. to Rs.14.38 cr. and the company expects this trend to continue. Sales shot up by 107% from Rs.50.6 cr. to Rs.104 cr. and gross fixed assets have gone up from Rs.56 cr. to Rs.89.73 cr.

Investment Triggers:
(1) The benefit of large investments made in the last few years are likely to accrue now and in coming years as the growth trend in sales is likely to be maintained;
(2) The company has locational advantage as it has 10 units in 5 states;
(3) All facilities are of global standards and demand for its products & services are very large;
(4) The market for steel assemblies and fabrications is growing at a very fast pace due to the robust growth in the engineering industry;
(5) Increasing trend of outsourcing by large companies due to need to concentrate on their core activities;
(6) Good export potential as many companies are looking to source these items from India as steel processing costs have increased substantially in Europe;
(7) Bottomline to go up sharply as initial burden of larger depreciation is already provided in the last few years;
(8) MoU with L&T Komatsu Ltd., L&T Capital Co. Ltd. to hold 26% shares in the said subsidiary will also add value to the stock in the long run;
(9) Leading investor, Rakesh Jhunjhunwala holds around 4.78%.

Checkout: Rakesh Jhunjhunwala's Latest Portfolio-September 2008
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Rakesh Jhunjhunwala's View On Indian Stock Market