Lloyd Electric and Engineering - Accumulate on dips.

??

Today this is the question asked by every retail, new and confused investors who are still planning to make a move. I am sure nobody can answer that. Bull markets are made from hopes and dreams and Bear markets are made of fear. 

For a value investor, bear markets are like heaven. It is getting exceedingly difficult for us to find value in markets these days.

So what should be the move ??

Well, we @ indianhiddengems continue to do our job the same way, what we have done till date after our inception some time back. Always keep the rules simple. Rule 1 is invest in companies that has value in the business and companies run by capable management to scale higher in-spite uncertain and tough times. and Rule 2 is always follow Rule 1 !!

As said by  Warren buffet himself, Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be mis-priced. Lloyd electric suits exactly to the criteria. 

Having said that one has to remember this : If we were to pick 1*x baggars in bear markets, 'x' can be smaller at times in a bull market.

Company background

Lloyd incorporated in 1988, is India’s largest manufacturer of evaporator and condenser (E&C) coils for air conditioners (ACs). It is mainly involved in manufacturing of heat exchanger coils for ACs and

refrigeration applications, rail coach AC units, window/ split AC, system tubing and header line and sheet metal items for AC. The company is an OEM supplier to various multi‐national companies in India. We believe that its higher presence in railway HVAC business, market leadership in coil + heat exchanger business, growing consumer business, fully integrated

business model, strong acquisitions in past, wide‐spread global presence and strong fundamentals is expected to fireup company’s future performance.

Convincing factors to invest 

Fundamental strength

The topline has been growing consistently. Also PAT grew at a higher rate due to various factors. More than that ROE shot from 0.92% in FY09 to 13.93% in FY14. Lloyd has seen growth from all sides as time has passed. The same is expected in the future.

Value from past acquisitions 

The past acquisition of  Luvata Czech in  Pragu,Czech Republic has provided Lloyd a strong foothold into the european markets.

Another acquisition at Czech based manufacture of air handling units, blowers, industrial coolers , heating and cooling coils helped Lloyd to become a global player in HVAC industry.

Demerger and transfer of perfect radiators and oil coolers added value for Lloyd's existing buisness of coils.

Change in Business mix

Contribution from Railway HVAC systems business seen growing.The company in its HVAC business manufactures Air‐conditioner units for railway industry including AC units for Passenger Coaches (Long distance, EMU and Metro) and Locomotives which are supplied on turnkey basis i.e. designing, manufacturing, supplying, installation and maintenance. Lloyd is an OEM supplier to Indian Railways and has been supplying these products to all the Rolling Stock manufacturing units of Indian Railways. It is a Qualified Category I supplier for Indian Railways – 80% of the tenders are awarded to Category I players. It is IRIS qualified, which enables it to bid for railway & metro projects internationally also. Notably, it is the first HVAC player in India with IRIS.

With Modi set to revolutionize Indian railways, Lloyd is bound to get huge benefit.

Market leader in Heat exchangers and coils

Lloyd remains a leading player with largest market share in non‐industrial heat exchangers. It is a dominant manufacturer of coils serving the heating, ventilation, AC and refrigeration (HVACR) industry, with almost 40% market share. It has a wide range of products, comprising Industrial heat exchangers, rail coach air conditioning units, split and window AC's, Precision air‐conditioners and automobile air‐conditioners.  Revenues have been coming down in the recent past as management has been concentrating more on railway HVAC. However due to various acquisitions, this division can show good growth in the future.

Consumer Electronic business

The consumer products division of Fedders Lloyd got transferred to Lloyd Electric effective from July 1, 2011. The key products of the consumer electronic business which serve the high – growth end segment consist of Window & Split Air‐conditioners and LCD/LED TVs with other products also being manufactured which cater to the niche consumer segment like tower & cassette ACs, clothes dryer, chest freezer & garment steamer.

OEM supplier to Air‐conditioning manufacturing companies

Lloyd  is an OEM supplier to various multi‐national companies in India. It has a state of the art assembly line for assembly and testing for window and split Air Conditioners and also has backward integration facility for manufacturing heat exchanger coils, tubing, capillary etc. The company is an OEM supplier and it has successfully diversified into contract manufacturing of ACs for clients such as Samsung, LG Electronics, Carrier, Haier, Voltas and Blue Star. Lloyd is further expanding into the transport AC segment and has developed new models for the same. Lloyd is also India’s leading manufacturer of fin and tube type heat exchangers for ACs and refrigeration systems. This  makes it an end‐to‐end solutions provider within the AC industry.

Export market

Lloyd is expanding its horizons to tap the overseas market and at present its product portfolio is being exported to the Middle East markets,African markets, Europe and North America. Company offers products such as room air conditioners, condenser and evaporator coils, Heat Exchangers for HVAC & R industry. Lloyd had taken extensive steps to boost its export performances including recruitment of professionals abroad to captivate business from the U.S. market. Lloyd has successfully developed Heat and Cool Models of AC with R-410A refrigerant for CIS countries,Nepal and Saudi Arab and has further taken steps to develop AC models for U.A.E and Iraq markets too.

Value when compared with peers

*Figures sales,profit in crores

The trailing PE has been lagging when compared to peers. And it is far behind in fact !!

Conclusion

Lloyd has been a darling stock till 2008, and totally forgotten by investors until recently. All of a sudden many brokerage houses have started initiating coverage with strong buy calls. Its a long way to go. We feel,spotting such companies early sages can give huge returns to investors.

With investments set to increase in the areas where Lloyd operates and with export market growing good, there is no wonder, Lloyd is capable of giving good returns for investors with 2-3 years time horizon.

We see enough opportunities in the future for Lloyd just to post great numbers! 

Stock had a good run up recently. Any correction will be a buying opportunity for long term investors.At CMP of 140, there is still enough sweetness left for all who wants to buy this gem !!

Regards,

MR