Brief Company Introduction
The Anup Engineering Limited demerged from its holding company Arvind Limited in 2018. It manufactures Heat Exchangers, Reactors, Pressure Vessels, Columns & Towers, Industrial Centrifuges and Formed Components. The company’s products are used in a wide range of process industries including Oil & Gas, Petrochemicals, LNG, Fertilizers, Chemicals, Pharmaceuticals, Power, Water, Paper & Pulp and Aerospace.
Financial Highlights & Results
- In the current year, the company has already booked over 150 crores in orders.
- The revenue in Q4 of FY23 was 144.2 crores, a 44% improvement over the same quarter of the previous year.
- The EBITDA in Q4 was 30.2 crores, a 26.8% improvement quarter-on-quarter.
- For the whole year FY23, the company achieved a revenue of 411.3 crores, a growth of 42.7% compared to FY22.
- The EBITDA for FY23 was 82.7 crores, a 20.1% improvement over FY22.
- The PBT for FY23 was 70 crores, a 17% increase over the previous year.
- The PATfor FY23 was 51.4 crores, a drop of about 17% due to a tax reversal in the last quarter of FY22.
- Exports revenue accounted for 19% of the business in FY23, and the company aims to grow it to 30% in FY24.
- The company announced a dividend of 150% (Rs. 15 per share).
Investor Conference Call Highlights
- The company faced challenges in FY23 due to geopolitical uncertainties, supply disruptions, and volatility in raw material prices.
- The working capital improved from 155 days to about 148 days.
- The company maintained its position of being almost debt-free despite new investments.
- The management stated that heat exchanger remains the dominant component in the product portfolio, accounting for about 74%.
- The new facility in Kheda is ready, and the company expects it to boost revenue in Q3 and Q4, with the first dispatch expected in August 2023.
- The management stated that in the first year of operation, the Kheda facility is expected to generate revenue of about 60 crores.
- The conversion rate of inquiries to actual orders is currently between 15% to 20%, depending on the company’s choices.
- The working capital cycle for the company is elongated due to the nature of long-gestation projects and varying cycle terms.
- The first phase of CAPEX for the Kheda facility is completed and capitalized at 87 crores.
- The company plans to start Phase 2 CAPEX during the next financial year, with an estimated investment of 80 crores, which will be funded from internal accruals.
- The management informed that other expenses have increased on a year-on-year basis due to royalty payments for licensed products, specifically the Helix changer and exchanger.
- The increase in other expenses is not expected to be a one-off occurrence. It will continue based on the product mix, but the impact on margins is already factored into the cost sheet.
- The company is transitioning from a domestic focus to an export-oriented approach, which is expected to increase winnability and reduce competition.
- The company is implementing a hedging policy to protect against foreign exchange fluctuations as it expands its export business.
- The management expects a higher win rate in the export market due to its competitiveness among the top four players in India.
- The management stated that the overall market demand for the company’s products, particularly in the oil and gas sector, has been strong, driven by CAPEX cycles, increased refining capacity, and the growth of petrochemicals and specialty chemicals.
- The contingent liability of Rs. 175 crores consists of bank guarantees, including advance-based guarantees (ABGs) and performance bank guarantees (PBGs).
- The ABGs and PBGs are proportional to the advances received and the order value, with PBGs typically ranging from 5% to 10% of the order value.
- The company is focused on increasing the use of duplex or stainless steel materials, which provide higher returns and complexity compared to carbon steel.
- The company is primarily focused on the US and Middle East markets for exports.
- The borrowing for non-current liability is 30 crores, while the borrowing for current liability is 4 crores. The borrowing is related to the Kheda expansion project.
- The cost of funds is 8.5%, and the company expects to receive a certain interest redemption subsidy from the Gujarat government, which will bring down the loan cost.
- Anup Engineering specializes in customized static equipment for various industries and has a good track record of on-time delivery and quality.
- The company sees opportunities in the refining sector as India aims to double its refining capacity, with potential projects worth billions of dollars. Anup Engineering’s share of this opportunity is estimated to be around 2.5% to 3%.
- The conversion rate of the bid pipeline is approximately 15% to 20%.
Analyst’s ViewThe Anup Engineering Limited demerged from its holding company Arvind Limited in 2018. It manufactures Heat Exchangers, Reactors, Pressure Vessels, Columns & Towers, Industrial Centrifuges and Formed Components. Company has adopted a technology to fabricate and supply Helical Baffle Heat Exchanger for the global market, under license from Lummus Technology Heat Transfer B.V, Netherlands. Company has a manufacturing facility in Ahmedabad, It can manufacture equipment ranging from 20 MT to 450 MT. Despite the initial disruption caused by the COVID-19 pandemic, the company has seen a return to normalcy. It is now optimistic about the order flow and demand for the next 2 to 3 years, driven by announced CAPEX cycles. The company’s strong track record in execution and customer trust have improved conversations and instilled confidence in future growth. By prioritizing exotic materials and proprietary items, the company aims to move up the value chain, leading to higher margins and reduced competition. With increased capacity and capability, the company has successfully pursued discerning orders from international clients, resulting in higher export volumes.