Good Show Expected - Patels Airtemp (India)

Down by about 26 per cent from its January 2010 peak, there would not be many takers for scrip of Patels Airtemp India (PAIL) in this market. However, we look at the brighter side and that is of the value that has emerged in the scrip. In fact, after an insightful discussion with Narayanbhai Patel, CMD PAIL, the company’s consistent performance, dividend-paying track record (FY09 dividend at 18 per cent) and the fact that it is available at low valuations, we believe it is worth to recommend at CMP of Rs 96.

Based in Gujarat, this Rs 68 crore turnover company is into manufacturing of engineering components and products. Its products include heat exchangers, air-cooled heat exchangers, columns and pressure vessels, refrigeration and air conditioning equipment and these products contribute 25 per cent each to the total sales. Though a small setup compared to its big peers such as L&T, BGR Energy, Paharpur, etc., PAIL has shown a consistent performance and has grown at a three-year CAGR of 26.33 per cent and 73 per cent both in the topline and bottomline.

What augurs well for PAIL is that its products form critical part in process plants, as well as find application across user industries such as refineries, power, cement, fertilisers, chemical, etc. This derisks the business by reducing depen-dence on any particular industry for its revenues. Also, with capacities expansion picking up across user industries, the demand for PAIL’s products remains strong in the coming quarters.[PAGE BREAK]

In addition, PAIL has a strong client list that includes IOC, RCF, National Fertilisers, Reliance, Essar, NTPC, Nuclear Corporation of India, BHEL, Ingersoll Rand, Kirloskar, etc. Its 80 per cent of the revenues comes from these companies, while the balance 20 per cent is from other clients.

PAIL has a strong order book, with pending orders worth Rs 45 crore. It has recently won a Rs 5 crore order for air conditioning of a mall in Ahmedabad. With an order in the pipeline of around Rs 11 crore, its order book size swells to around Rs 61 crore, giving it good revenue visibility in the coming period.

Financial Performance
On the financial front, for 9MFY10 PAIL’s revenues and profits increased 5 per cent and 18 per cent to Rs 50.99 crore and Rs 6.12 crore (Rs 5.18 crore) respectively. PAIL could end the fiscal with revenues of Rs 74-76 crore and profits of Rs 8.5-9 crore. At these estimates PAIL generates an EPS of Rs 16.75, thereby resulting in to PE of just 5x, which is quite low. In fact, on EV/EBITDA too it’s available at mere 3x, which is quite attractive. Besides considering the fact it has underperformed the broader market, we expect this only BSE-listed scrip, with volumes of over 15000 to catch up with the valuations. Hence one can buy it with one year target of Rs 124.