Recommendation from Engineering - Industrial Equipments Sector

This column gives you a scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

THE ANUP ENGINEERING LIMITED: WELL-POSITIONED FOR GROWTH

HERE IS WHY
✓Expertise in heat exchangers
✓Expanding its range of technologies
✓Ambitious projections for growth

India remains one of the fastest growing major economies globally. Higher capex is likely to fuel this growth, which will be led by demand for engineering sector services. One such company which is well-positioned to benefit from the growth of the Indian engineering industry is The Anup Engineering Limited (AEL) whose almost 65 per cent revenue comes from heat exchangers. The India heat exchanger market is expected to exhibit CAGR of 7 per cent during 2022-2027.

AEL manufactures industrial products like heat exchangers, reactors, pressure vessels, columns and towers, industrial centrifuges and formed components. The company’s products are used in a wide range of process industries including oil and gas, petrochemicals, LNG, fertilisers, chemicals, pharmaceuticals, power, water, paper and pulp and aerospace. AEL’s main advantage is expertise in manufacturing of heat exchangers. The company derives almost 70 per cent of its revenue from oil and gas refining and the balance 30 per cent from petrochemical and fertiliser sectors. 

India is planning to double its refiningcapacity to 450-500 million tonnes by 2030 which suggests robust demand for heat exchangers in the near future. The company has established a technological partnership with Lummus Technology to produce helixchangers, a type of shell and tube heat exchanger featuring helical baffles. This product plays a significant role in the company’s heat exchanger offerings. AEL intends to expand its range of licensed technologies, incorporating exclusive elements into its product portfolio to enhance its standing in the market and increase its order book.

It is currently engaged in advanced negotiations for technological collaborations and partnerships to develop more sophisticated and advanced equipment designs. The company has a manufacturing facility in Ahmedabad where it can manufacture equipment ranging from 20 MT to 450 MT. It is ready to operate a new manufacturing project at Kheda Phase 1 which will have three phases on completion and is expected to deliver top-line of ₹500-550 crore that will help the company execute larger and more complex equipment orders. It has leading clients on its roll such as HP, Reliance Industries, General Electric, Linde, Indian Oil, and others.

In the first nine months of FY23 the company’s net revenue was ₹267.17 crore. Out of this total revenue, heat exchangers constituted 78 per cent while pressure vessels, towers and reactors shared 22 per cent. In terms of geographical break-up, while domestic sales were to the tune of 75 per cent, exports consisted of 25 per cent. As of December 31, 2022, it had an order book of ₹565.6 crore which gives good revenue visibility. Based on its trailing 12-month total revenue of ₹367 crore, its order to sales ratio stood at almost 125 per cent. 

The orders are mainly for heat exchangers, vessels and tower and reactors and consist of 64, 19 and 17 per cent of the total order book, respectively. The company is currently trading at a PE of 18.8 times as against the industry PE of 24.6 times. The Anup Engineering Limited is a leading player in the Indian engineering industry and is wellpositioned to continue to grow and succeed in the years to come. Taking into account the company’s business as well as the potential offered by the industries it serves, we recommend BUY.