Yuken India - Holds Excellent Prospects - Sunidhi

Q4FY12 & FY12 Results:

During Q4FY12, net profit on standalone basis rose by 47.6% to Rs.3.8 crore (Rs.2.6 crore) on 19.6% higher sales of Rs.53.5 crore (Rs.44.7 crore). OP and NP margin stood at 14.2% and 7.1% as against 12.0% and 5.7% respectively in Q4FY11. (YoY)

During FY12, net profit on consolidated basis fell by 0.9% to Rs.10.7 crore (Rs.10.8 crore) on 12.9% higher sales of Rs.179.0 crore (Rs.158.5 crore). OP and NP margin stood at 13.4% and 6.0% as against 13.5% and 6.8% respectively in Q4FY11. (YoY) FY12 EPS works out to Rs.35.7 Vs Rs.36.0 in FY11.

Company Description:

Incorporated in Bangalore in 1976, YIL manufactures hydraulic equipment in technical collaboration with Yuken Kogyo, Japan, which holds a 40% stake in the company. YIL's captive foundry unit at Bangalore provides over 90% of its castings requirement. The parent Yuken Kogyo established in 1956 is one of the leading manufacturers of industrial hydraulics in the world. It has 3 manufacturing plants in Fujisawa, Fukuroda and Sagami, in Japan.

Products:

YIL manufactures vane pumps, piston pumps, gear pumps, direction control pumps, pressure control valves, flow control valves, modular valves, logic valves, electro proportional valves, servo valves, hydraulic power units, mobile control valves, pal pumps, Parison controllers, actuators and accumulators.

Subsidiaries & Joint Venture:

For high torque, low speed Hydraulic Motors, YIL has a JV, SAI India (SIL), with SAI Spa of Italy. YIL's subsidiaries are: Coretec Engineering India Pvt Ltd, Bangalore, Yuflow Engineering Pvt. Ltd, Chennai; Prism Hydraulics Pvt Ltd, Belgaum and Sriplas Engineering India Private Limited, Bangalore.

Products Reach:

YIL's products find application in Steel Plants & Steel Mills, Machine Tools, Plastic Machinery, Defence, Automobile, Material Handling Equipment Manufacturers, Construction Machinery, Hydraulic Presses, Furnaces and Heat Treatment Plants, Drill Rigs, Dam Hydraulics, Power Projects and Cement Industry.

Clients

YIL's major clients are Tata Steel, Jindal Iron & Steel, Mahindra Ugine, Bajaj Auto, Maruti Suzuki, Escorts, Godrej, Bharat Forge, Goetze, Grindwell Norton, HUL (Hindustan Lever), HMT, Hero MotorCorp, Honda Motorcycle, Ingersoll-Rand (India), ITC, Kirloskar Electric, Lakshmi Machine Works, Larsen & Toubro, NHPC, NRB Bearings, Thermax, ABB, BHEL, Enercon, Ordnance Factories and Defence sector among others.

Segment Revenues

Machine tools industry accounts for about 40% of revenue. Sales made are used as an end product that is added as a part of the final product (like CNC machines etc) and sold further. Steel industry accounts for 25% of revenue. YIL product is sold as capital equipment (semi consumable) and for spare purposes.

Power sector accounts for 20% of company sales. YIL product is sold as capital equipment, usually as part of hydraulic systems. YIL supplies to thermal, wind and mini-hydro power sectors. Automobile industry accounts for 10-15% of company sales. YIL product is sold as capital equipment (semi consumable) and for spares purposes.

Expansion & Modernisation

YIL has spent Rs.29 crore in the last 2 years taking its gross block to Rs.58 crore from Rs.29 crore in FY10 funded partly by loans and partly by internal accruals for replacing/adding hydraulics machinery. YIL is increasing its building size currently to accommodate the new equipment and possible more equipment in the future. The new equipment could lead to increase in production by 20-30%.

YIL's expansion of foundry casting capacity would increase from 200 tonnes/month to 350-400 tonnes/month, providing abundant raw material to increase production of pumps, valves etc. The excess castings will be sold, thereby increasing revenue. The full impact of these investments would be reaped in the ensuing years.

Prospects

Coming to prospects, the pump, valve, vane and hydraulic system industry is a very large industry and plays a critical role in almost every facet of our lives. These are used in water supply, fire protection, oil & gas, power plants, waste water treatment, sump pumps at homes, processing chemicals, foods & pharmaceuticals, and many more. The Hydraulic Industry is a measure of the progress of a nation in terms of industrialization as well as social development. Obviously, extensive use of sophisticated hydraulics correlates with a high level of development.

Valuation & Recommendation

The focus on high technology pumps and turnkey pumping solutions coupled with increased capacity will stand to gain by way of strong revenue growth and profitability going forward. Manufacturing of energy efficient pumps with lower life cycle cost and innovative pumping solutions and services will largely drive the growth in future. At the CMP of Rs.185, the share is trading at a P/E of 4.4 on FY13E and 3.4 on FY14 earnings. We maintain our BUY recommendation with a target price of Rs.250 in the medium term.

Source : Equity Bulls

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