Kilburn Engineering – Huge undervaluation

Not sure if anyone here is tracking this company of late. Has been reporting good set of numbers backed by robust order book, experienced track record in setting up customized equipment, sectoral tailwinds, change in management and revival in capex cycle.
Conducted its first ever con-call post Q1 FY 24

Con-call notes

1. Business Overview
   • 300 cr revenue in coming year is achievable
   • Targeting 450-500 cr revenue in 2 to 3 years
   • Enquiry pipeline of approx. 750 crores. Most of this likely to get closed in this year.

2. Global collaborations
   o Nara (Japan) – Company manufactures paddle dryers of Nara design for Indian market and in talks on supplying it for other markets
   o Carrier – manufacturing some of the equipment of their design and working on offering them engineering services from India and arrangement of contract manufacturing. Looking to support them if they get orders from US or Europe.
   o Idreco ( A European based water treatment company) is recent tie-up – started receiving orders for spare parts and other small equipment. This is an exclusive collaboration. Tenure is 3 years; and can be extended further.
   More details – Idreco_Presentation_Letter_(En).pdf (707.1 KB)

3. Applications diversified across sectors –
   o Chemicals
   o Speciality chemicals
   o Food industry
   o Fabrication of critical equipment

4. Earlier, were more product centric. Now transforming to becoming more solution providers.

5. Margins –Endeavour is to maintain 15 to 17% EBITDA margins.

6. Export is roughly – 15 to 20%. Export will remain key focus area and will look to take advantage of lower manufacturing costs compared to Europe.
   a. Currently US & Europe are serviced through a regional tie-up. Looking to setup own team there in near future.

7. What has changed of late
   o New management – Mr Ranjit Lala as MD (has 3 decades experience in different companies across different functions like Manufacturing, supply chain, international sales, etc)
   o Lot of focus on scaling up order value and Economies of scale
   o Better product mix
   o Tailwind of sector demand
   o Superior Operational efficiency – on receipt of orders, RM orders are placed within 48 hours, which mitigates fluctuation in cost of RM
   o Recently entered carbon black market
   o Fabrication of silos – Recently bagged a project with Technip for IOCL refinery in Paradip.
   o Transforming into a solution provider than product centric

8. Differentiators
   o Strong relationship with customers. (Company’s customers include Reliance Industries, Tata Chemicals, Nirma, Vinati Organics, etc). Start working right from conceptualization stage. Ability to manufacture with different kinds of exotic materials.
   o Operating in in a niche market where setting up equipment like Carbon black dryers requires technological knowhow
   o Experts in fabrication – Mastered all kinds of welding practices. There are 450 processes involved in welding and fabrication. Huge competitive advantage…

   Dryer business globally is a $1-2 billion market and in India its roughly around Rs.3,500crs.

9. Service segment has higher margins than manufacturing. Will look to scale up the service segment further

10. Competition is different by for different products
    o Rotary dryers – GMM Pfaudler, Walchandnagar.
    o Applications in carbon black – few companies in Germany, China
    o Soda ash – Chinese companies.
    o Paddle dryers – Mostly small players.

11. Products are capex intensive. Must keep monitoring capex cycle …

Disc: Invested from sub-100 levels and biased