Goodluck India Ltd
(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.