Some notes from Q1FY24 Concall:
Reasons to Sell the Nuclear pump business:
Apart from what is already disclosed in the presentation;
(a) The industry environment is such that it will go through consolidation and a lot of M&A activity.
(b) Business needed significant capital expenditure to remain competitive
(c) Got good deal at EV/EBITDA 12x
(d) Helps increase cash reserves & strengthen the Balance sheet in current High Interest Rate environment
Note: Divestment will be completed by December this year, for now it will appear in the consolidated financials. This business makes up about 11% of top line.
Utilization of funds raised through sale: About Rs. 600Cr.
(a) Looking at inorganic opportunity in domestic or international market within Pumps
(b) Will wait till the sale goes through to decide how to utilise the funds
View: Management seems to have taken a prudent and rational decision in selling the nuclear business which will provide them with fire power to focus on growing core pumps business which has a large opportunity.
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Management is conscious of the margins and the type of projects they want to take up to maintain healthy financials
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Management says the challenges are on the execution side and not on Order book. Hence, focusing on project execution, orders are there to take up.
Business momentum:
- To continue
- H2 is stronger for domestic projects segment due to the on set of monsoon, about 60% higher than H1 during a year
- Australia is turning out to be a good growth area with the subsidiary being the only Oil & Gas pumps provider → Huge oder book development
On NSE listing:
- Participant requested the management to consider listing on NSE given their growing size, management responded saying “sure”, didn’t provide any concrete intention yet.
Defence products:
- New area of growth
- Co. has developed new products for the navy and is looking positive for good growth in the short-medium term. Will announce once things materialise.
Valuation:
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One has to be conscious of the frequent upper/lower circuits due to low liquidity of stock with 70% held by the promoter.
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Now considering 10-11% top & bottom line evaporating with the sale of Rutschi, and with the Domestic & International Products order book of Rs. 1100Cr to be executed over 1-2yrs and 2800Cr of Jal Jeevan order book to be executed over the next 3 years (from Q4 FY23 concall). It looks like this will more than compensate for this loss + inorganic acquisition is an optionality.
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