Good­luck In­dia Ltd

Money Times - - Best Bet -

(BSE Code: 530655) (CMP: Rs.91.30) (FV: Rs.2) By Bik­sha­p­athiThota

Estab­lished in 1986, Good­luck In­dia Ltd (GIL) is an ISO 9001:2008 cer­ti­fied or­ga­ni­za­tion en­gaged in the man­u­fac­ture and ex­port of a wide range of gal­va­nized sheets and coils, tow­ers, hol­low sec­tions, CR coils, CRCA and pipes and tubes. It spe­cial­izes in pro­vid­ing Telecom­mu­ni­ca­tion Struc­tures, ERW Steel Tubes, ERW Steel Pipes and Gal­va­nized Black Steel Tubes. It also of­fers third party in­spec­tions from re­puted agen­cies such as DGS & D, RITES, BHEL and SGS be­fore the prod­ucts are dis­patched at the client end. It caters to the needs of clients from the Pub­lic as well as Pri­vate sec­tor, OEMs (orig­i­nal equip­ment man­u­fac­tur­ers) and Cen­tral and State Gov­ern­ment Depart­ments.

GIL has five busi­ness ver­ti­cals - Tube/ Pipe, Roof­ing Sheets, Engi­neer­ing Struc­ture, CDW/Auto Tube and Forg­ing. It mainly sup­plies to auto, oil & gas, power and engi­neer­ing struc­ture in­dus­tries. It has a strong do­mes­tic as well as in­ter­na­tional cus­tomer base, which se­cures strong rev­enue growth. The man­age­ment ex­pects the Com­pany’s engi­neer­ing struc­ture di­vi­sion and CDW/Auto Tubes seg­ment to grow faster in near fu­ture led by the gov­ern­ment’s thrust on in­creas­ing so­lar ca­pac­ity, build­ing steel footover bridges and bright prospects in the auto sec­tor. The Com­pany’s CDW auto tubes seg­ment con­tributed ~24% to the to­tal sales. The man­age­ment ex­pects this seg­ment to grow at ~20% over the next two years led by growth in the de­mand for au­to­mo­biles.

Good Luck Engi­neer­ing Com­pany Ltd (GECL): GECLis a lead­ing man­u­fac­turer of open and open die steel forg­ings. It is ISO 9001:2008, cer­ti­fied and a gov­ern­ment rec­og­nized ex­port house with the sil­ver seal sta­tus. It ex­ports qual­ity steel forg­ings across the globe. Its clien­tele is spread across 90 coun­tries in­clud­ing UK, Sin­ga­pore, South Africa, Oman, UAE, Aus­tralia, New Zealand, East & West Africa, Latin Amer­ica, Trinidad, Ghana, Haiti, Ethiopia, Sri Lanka and Mada­gas­car.

Good Luck In­dus­tries (GLI): GLI is an ISO 9001:2008 cer­ti­fied man­u­fac­turer and ex­porter of a pre­ci­sion en­gi­neered range of Cold Drawn Welded Tubes and Pre­ci­sion Tubes. Its prod­ucts are ex­ten­sively used in au­to­mo­bile, oil, fur­ni­ture, con­struc­tion, elec­tri­cal and var­i­ous other in­dus­tries.

Value-added prod­ucts: GIL has in­creased the share of its engi­neer­ing value prod­ucts to fo­cus more on value-added engi­neer­ing prod­ucts than reg­u­lar prod­ucts, which also im­proved its EBITDA mar­gins from 5-5.5% to 10% in FY16. It has dou­bled its engi­neer­ing struc­ture ca­pac­ity to 48,000 TPA con­sid­er­ing the growth prospects in this seg­ment. We be­lieve that the engi­neer­ing struc­ture seg­ment will be the key driver for growth and will con­trib­ute to the EBITDA mar­gin ex­pan­sion. We ex­pect ~170 bps im­prove­ment in EBITDA mar­gin over FY16-FY18E. GIL is ben­e­fit­ting from the new op­por­tu­ni­ties gen­er­ated in in­fra­struc­ture devel­op­ment. The man­age­ment ex­pects rev­enue growth in the engi­neer­ing struc­ture seg­ment and CDW tubes driven by the fol­low­ing fac­tors as 1) the gov­ern­ment aims to in­crease so­lar power gen­er­a­tion to 100 GW by 2020; 2) the gov­ern­ment un­der the Setu Bharat project ex­pects to build 208 rail over and un­der bridges at un­manned rail­way cross­ings on na­tional high­ways; 3) the Supreme Court judg­ment for all un­manned rail­way sig­nals to be con­verted to Rail­way over bridges; 4) bright prospects in the auto seg­ment. We ex­pect the Com­pany’s rev­enue to grow at 17% CAGR over FY16-18E.

GIL pro­vides struc­tural so­lu­tions to so­lar power com­pa­nies and sup­plies prod­ucts to so­lar projects. It aims to in­crease the con­tri­bu­tion from ~10% to 30% by FY18E. On a con­ser­va­tive ba­sis, we ex­pect the engi­neer­ing struc­ture seg­ment to con­trib­ute ~23% of the to­tal rev­enue by FY18E.

GIL is en­gaged in the fab­ri­ca­tion of crit­i­cal com­po­nents of bo­gies, front body parts of lo­co­mo­tives, doors of pas­sen­ger trains and un­der frame etc. for the In­dian rail­ways. Its prod­ucts are RDSO ap­proved for rail­way bridges and gird­ers. Con­struct­ing steel bridges with them is less time-con­sum­ing and stronger than the tra­di­tional ce­mented bridges and will there­fore cre­ate a huge op­por­tu­nity for the Com­pany.

We ex­pect GIL to record rev­enue/earn­ings growth at ~17/44% CAGR over FY16-18E led by 1) shift in fo­cus from low mar­gin prod­ucts to high mar­gin engi­neer­ing prod­ucts; 2) ex­pected 3.5/4x value term growth in the au­to­mo­tive sec­tor over the next 10 years; 3) In­dia’s GDP to grow over 7% over the next cou­ple of years; 4) huge op­por­tu­ni­ties from

Rail­way and So­lar in the engi­neer­ing struc­ture seg­ment; 5) im­prov­ing EBITDA mar­gins by ~170 bps over FY16-18E. There­fore, we have a Buy on the stock with a price tar­get of Rs.136 (8x FY18E earn­ings) within a year.

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