Ducon Infra

Hi. I came to know about Ducon Infra from moneycontrol forums. I have been tracking this quite closely and I believe it presents a promising opportunity. The company is primarily into emission control systems. After some research I understood that emission control industry can soon attract a lot of big fishes due to a recent government order making it compulsory for coal power plants to install FGD (Flue-gas desulfurization) systems to limit sulfur emissions by 2022. This is expected to result in orders worth Rs1.3tn over the next 4-5 years.

Big wigs like MOSL and IIFL have reported this and mentioned Ducon as a key player. BHEL, L&T and Thermax are major competitors however Ducon being a much smaller company (Mcap : 240cr) is expected to see a huge impact of these orders. I have pasted the links for MOSL and IIFL articles below, More info to follow...

https://www.motilaloswal.com/site/rreports/HTML/636511724176842223/index.htm
https://www.indiainfoline.com/artic...den-days-of-capital-goods-118042700045_1.html

 

Two years ago when the government passed a similar order there was a lukewarm response. However this time things appear to be different NTPC has already given out three orders worth Rs. 1436 cr during the past six months(links below). Remember this is just the tip of the iceberg. Ducon can be a perfect proxy for the power industry to since all new plants will have to compulsorily install FGD systems.

https://www.financialexpress.com/in...bidder-for-rs-567-crore-ntpc-project/1011556/
https://economictimes.indiatimes.co...rore-order-from-ntpc/articleshow/62915923.cms
https://timesofindia.indiatimes.com...-fgd-order-from-ntpc/articleshow/63382992.cms

 

Let me put some more light on Ducon. Prior to the merger, the listed entity Ducon Infra was a relatively small company with sales of around Rs.40cr only while Ducon Technologies Pvt. Ltd. was the larger company which had sales of about Rs. 400cr. The promoters decided to merge both companies to make the most of the once in a generation opportunity caused by the government order.

According to the latest filing, Ducon Infra (the merged entity) has a revenue of Rs.415 cr while the market cap of the company is around Rs. 230 cr. This means that the company is selling at almost 50% discount to sales. This is truly amazing since even an average size FGD order (from a power plant) is worth around Rs. 300 to 500 cr.

Apart from emission control systems, the company has also diversified into IT, the details of which I will share in the upcoming posts. (It is taking some to do a complete research since Ducon has quite a few group companies including a NASDAQ listed firm called Cemtrex)

PS: Please don't rely on moneycontrol numbers since they have not updated the post-merger financials.

 

How come it is available at such cheap valuations? It touched a lifetime high of 90 odd but has steadily been going downhill since then. what could be the reason?

 

From a fundamental standpoint, the delay in the amalgamation process and the lethargy of power plants to implement Ministry of Environment and Forests' (MOEF) norms might have affected investor morale. Power plants had certain concerns which were not taken in to consideration by the ministry. However the revised implementation plan has been drafted based on consultations with power plants.

In addition to this another reason for the stock's performance might be operators. The lack of interest among investors and institutions (which prompted profit booking at high levels) over the past two years due to the aforementioned reasons probably enabled operators to take control of the stock. This is expected to change as major brokerage houses and financial institutions are now paying attention to this industry due to the enormous opportunity and the renewed zeal among the ministry and the power plants to implement pollution control norms.

 

Hi, DVI, thanks for putting things in perspective so nicely. Would it be a good idea to invest at these levels? Thanks.

 

I believe the valuations and the story warrant a small to moderate exposure. I myself have a moderate exposure in the stock (average price of around Rs. 29). I am planning to increase it sequentially in the coming months especially after they release their annual report. As of now the stock looks really promising. My conviction in this stock is also bolstered by the fact that the promoter holds around 70.16% (link posted below) of the amalgamated company. This aligns shareholders' interest with that of the promoter.

I'll try to share more pro's and con's of the company over the next few days.

PS: Thanks for showing interest in this thread . Feels good to discuss stock ideas with fellow investors

https://www.bseindia.com/corporates/anndet_new.aspx?newsid=2291a7c3-86fb-4c58-af90-c104c085a08f

 

Hi. Deep Value ..do you have a website or a blog it twitter account that we can follow or you are one of us ordinary mortals? If you have Pls post it so ppl can follow..

 

hahahaha.....i am definitely an ordinary mortal....i am looking forward to start a blog once I am done with my research on Ducon (including its financial model)...however, be advised; in front of the markets, everyone is a mere mortal

 

Just your name gave me idea that you are sonneething much more than a lay man or .Woman.. Pls share your other findings or called till you become another paid or premium advisory..

 

Chart showing its a shell company. Not a good company.

 

Please elaborate.

 

Just picked this up from the moneycontrol board....doesn't sound good for ducon?

In a significant development, the National Thermal Power Corporation (NTPC)’s Dadri Power Plant is opting for a Dry Sorbent Injection (DSI) system for controlling sulphur dioxide (SO2) emissions and ensuring compliance with the 2015 environmental norms within the stipulated deadline. The Dadri power station had invited bids in March 2018 interested manufacturers to install DSI technology. In the first phase, four power generation units with a capacity of 210 MW each will be targeted. The Invitation For Bids (IFB), currently running in its final stages, has laid out the technical criteria, wherein the bidder should have built at least one DSI system “in a pulverised coal fired unit, having flue gas flow of not less than 6,00,000 Nm3/hr, with sulphur dioxide capture efficiency of at least 50..... The….System should be using Sodium Bicarbonate as reagent and should have been in successful operation for a period not less than one (1) year prior to the date of Techno-Commercial bid opening.” The power plant has been asked by the Central Pollution Control Board (CPCB) to comply with the environmental norms for coal-fired thermal power plants by December 31, 2019. The environment ministry has submitted the information that the plant will be compliant with the environmental norms by 2019 to the Supreme Court as part of the case on air pollution in Delhi, wherein pollution coal-fired thermal power plants has been included for hearing among other issues. What is DSI? As per the Institute of Clean Air Companies in the United States of America (USA), DSI is the practice of injecting a dry alkaline mineral into a flue gas stream to reduce acid gas emission. DSI offers advantages in comparison to traditional acid gas scrubber technology: lower capital cost, wide range of favourable operation conditions, and much lesser time for completing installation and commissioning. While conventional wet limestone flue gas desulphurisation (WLFGD) takes over two years, DSI takes only 12-14 months to be up and running. It also reduces emissions of other acidic gases and heavy metals like mercury. Sodium sesquicarbonate (or Trona) and sodium bicarbonate are sorbent materials (which can collect molecules of another substance by sorption), though hydrated lime can also be used sometimes. India has surplus sodium bicarbonate production, thanks to the chlor-alkali industry and its sizeable global presence. Thus, the reagent is also not very expensive, eliminating high operational costs as a barrier.

Feasibility of the technology is not an issue G Srikanth, an independent technical expert, believes that the technology choice is appropriate. “The lower capital cost and smaller construction and commissioning time make it ideal for smaller generation units that have stiff deadlines. Moreover, DSI actually improves the efficiency of electrostatic precipitator (ESP), thus reducing the emission levels of Particulate Matter (PM) further,” he said. Operational costs due to reagents, however, remain a bone of contention. While some experts believe that the reagent in question is expensive, raising the operational costs, others are of the opinion that the higher cost is offset by the lesser quantity of reagent that will be needed in the process. Notwithstanding the differences in opinions over cost of reagent, this is a significant development for the power sector, as the stations and technology manufacturers had been advocating for flue gas desulphurisation (FGD) as the only solution. The Centre for Science and Environment (CSE), which has been at the forefront of advocating implementation of the 2015 environmental norms, had recommedned that the smaller power generation units (less than 500MW) should be adopting alternatives to the FGD system to achieve compliance with the prescribed standard. Against the 300 mg/Nm3 standard prescribed for 500MW units, the smaller units have to meet 600 mg/Nm3. Interestingly, in a 2016 roundtable conducted by CSE, several representatives of the thermal power industry as well as technology suppliers had agreed to the utility of sorbent injection for the smaller units. Moreover, sorbent injection is not a new technology. It is not entirely unknown to India. Sorbent injection with hydrated lime as the reagent has been in practice for a long time in the cement and steel industries in the country to control SO2 emissions.

 

I don't think any one can identify a shell company just by looking at its chart. Ducon is definitely a legit company which is proven by the numerous projects they have worked on over the years with industry titans such as NTPC, Hindalco, BHEL etc. Even the IBEF lists Ducon as a key player in the emission control industry. Moreover why would an organisation like IIFL invest in Ducon if it were a shell company?? Please do some basic research before making such nefarious allegations or at least read the links that I have posted above wherein both Motilal and IIFL have listed Ducon as a key player in this industry

https://www.ibef.org/download/Industry_150710.pdf
https://www.indiainfoline.com/artic...ets-fgd-contract-in-india-116120800266_1.html
https://www.futuremarketinsights.com/reports/flue-gas-desulphurization-market

 

Hey thanks for bringing this to my notice . However, there is nothing to worry since Ducon USA provides dry sorbent injection systems and since both companies have the same promoter , ie, Arun Govil, transfer of technological know how would be seamless. This was pointed out in the moneycontrol forum itself by some user. Still, I dug in a little by myself and I found that they do provide DSI systems. In their website they have mentioned DSI as dry injection type systems and have given a description of how it works. This description matches with EIA's (Energy Information Administration US) description of DSI systems. Below are the links:

https://www.eia.gov/todayinenergy/detail.php?id=5430
https://www.ducon.com/dry-scrubber.html

 

DVI, nice to have a sincere & genuine investor like you on this board. Look forward to more such informative & meaningful posts from you. Thank you.

 

There is another thing which I would like to point out. However this is more of a informed speculation rather than a fact, so bear with me.

Not all bidders for these FGD orders have the technical know how of pollution control systems.
For example IGSEC, (which has been mentioned by Motilal and IIFL along with Ducon, BHEL and L&T) did not originally have FGD capabilities by itself. Hence, to ensure that they stay in the race for FGD orders they entered into a technology agreement with Babcock Power Environmental Inc, USA for SOx reduction process by use of Wet Flue Gas Desulfurization (FGD) Units. Similarly BHEL has a licensing agreement with MHPS (Mitsubishi Hitachi Power Systems) and L&T has a JV with Chiyoda. GE Power and Ducon are two major EPC companies which have FGD know how.

Now we know that as of now three tenders have been awarded by NTPC; one each to BHEL, GE Power and Reliance Infra. BHEL and GE, as mentioned above can fulfil the orders by themselves.
But what about Reliance Infra ?? This is what they said after winning the tender :
"Our strong credentials in FGD works are borne out by the system installed by us at Dahanu power plant long back in compliance with the statutory guidelines of the Pollution Control Board to reduce SO2 emissions,"

But here is the twist. Dahanu plant's FGD was actually installed by yours truly, Ducon. https://www.projectstoday.com/News/Ducon-Tech-bags-Dahanu-power-plant-order

So does that mean Reliance is looking to collaborate with Ducon ?? Only time will tell....However the lack of Rel Infra's experience in FGD (there is no mention of their FGD capabilities anywhere, not even in their website) increases the probability of them going ahead with some sort of a JV. Lets see what happens.....

PS: Thanks for the kind words Raaz.

 

The above article is dated 5th may 2005....?

 

Yes.....it was in fact the first global tender for FGD in India...It was commissioned in 2007 according to the Ducon material.

 

For me what matters is net sales and net profit at least on yearly basis. I don't really see any earnings to get hyped about