BSE ID : 533001 NSE ID : SOMICONVEY
RECOMMENDED PRICE 51.55
PEAK FROM RECO 87.00 68.77%
CURRENT PRICE 41.10 20.27%
The industrial activities are likely to grow with impetus on make in India, infrastructure development and growing foreign investments. Going forward, we expect the company to post top‐line of Rs. 90 cr in FY20 with a net profit of Rs. 5.6 cr translating into an EPS of Rs. 4.8. Assigning a target multiple of 20x, we derive our target price of Rs. 95 showcasing an upside potential of 83% from current levels, with an investment horizon of 12‐18 months.
A wide range of benefits of conveyor belts would give a push to its usage, going forward: The conveyor belts are costeffective, enables efficient and quicker handling of material. It is not only less prone to accidents but also environmental friendly. These belts are quieter, adaptive and provide much flexibility while offering more space to the facilities. Moreover, the rising labour costs and labour‐related concerns, coupled with growing awareness amongst industrialists helps them consider automation & conveyorization. These features lead to efficiency and effectiveness and thereby, higher productivity.
Low utilizations & healthy margins makes the company a good candidate to gain from operating leverage: Somi Conveyor Beltings Ltd. (SCBL) is currently running at less than 50% of capacity utilizations in light of consistent expansions citing huge opportunity and tepid demand over the last couple of years. Nevertheless, the company has been able to maintain mid‐double digit profit margins which can definitely go higher once the demand returns. The recently added steel‐cords conveyor belts have much higher realizations and better profitability as compared to rubber/fabric belts. The rise in contribution from the steel belts to the top‐line would provide a boost to the profit margins. Further, the company has no capex plans in near future.
India to remain one of the fastest growing economy and to see huge industrial and consumption demand: India remains an attractive hub for foreign investments, particularly in the manufacturing sector. Several luxury automobile brands have already established and many other manufacturers are looking to establish their bases in the country. With implementation of GST, the tax system will make India a common market becoming a big draw for investors. With push towards developing industrial corridors and smart cities, alongwith campaigns like Make In India, the country would need a conducive environment for the industrial development and will promote advance practices in manufacturing.
The industrial activities are likely to grow with impetus on make in India, infrastructure development and growing foreign investments. An anticipated increase in mining output, cargo movement, growing consumption, and since automation is the key for efficiency and productivity, thereby, will benefit all the leading players in the industry. SCBL has managed to remain relatively resilient during the recent downturn on account of repetitive orders from the existing players owing to shorter life span of the product. The capacity utilizations are still substantially low and realizations are likely to go up going forward with the recent foray into steel cords conveyor belts. Going forward, we expect the company to post top‐line of Rs.90 cr in FY20 with a net profit of Rs.5.6 cr translating into an EPS of Rs.4.8. Assigning a target multiple of 20x, we derive our target price of Rs.95 showcasing an upside potential of 83% from current levels, with an investment horizon of 12‐18 months.
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