Loyal Equipments AGM’24 Notes

• Margins: Drop in GM in recent years due to increase in RM costs. Going forward expect ebitdm to grow to 22-23% with increasing scale
• Order Book: In good shape, have good order book in place (15-20% higher YoY) but last 1-2 months is down due to elections but will pick up.
• The recurring annual contract with Linde Engineering for 20Cr/annually will end in 2025 and it will get reviewed and mostly get renewed. The contract was to provide Modular Skids.
• Modular Package/Skid is the major product which the other competitors don’t provide so have an advantage in here and the market is shifting towards modular skid.
• Product Mix (FY’24):
  • Modular skid/package: 30-40%
  • Heat exchangers: 40%
  • Auxilary Skids: 10%
  • Pressure Vessels: 10%
• Expansion Plan: UAE office will be completed in 6 months. Already in USA doing sales & marketing and now will add a manufacturing plant in USA on the demand of a customer which might start by FY26-27.

Key Concerns:

1. Dependency on contracts/orderbook, top client (Linde) if doesn’t renew contract then revenues could be impacted too

2. Competitive Intensity: There is no differentiation in products and the other key players in market are at a bigger scale/are more established. And according to Loyal equipments their MOAT/differentiation keeping them in the market is their product mix – they claim no one else supplies Modulary Skids but once competition starts supplying then revenues could be hit pretty bad as contribution is very high ~50%

3. Working capital intensive business – Loyal’s revenue is dependent on large project by the user industry and typically the delivery period may vary from 30-150 days. If we look at its overall working capital days it remains between 100-200 days. These will also depend on dispatches during the year end.