Thursday, June 16, 2011

Morganite Crucible (India) Limited


Morganite  Crucible (India) Limited manufactures and markets silicon carbide and clay graphite crucibles, crucible furnaces, and foundry products. It is based in Aurangabad and operates as a 75% subsidiary of UK based  Morgan Crucible Co, plc.

Background:
The compamy was formerly known as Greaves Morganite Crucible Limited and changed its name to Morganite Crucible (India) Limited in August 2006.
Greaves Cotton Ltd  held 7,14,000 Equity shares of Rs 10/- each of Greaves Morganite Crucible Ltd , representing 25.5%  equity. Morganite Crucible Co.plc bought these from Greaves Cotton Ltd , at a price of Rs 150/- per share in mid 2006.

Promoter background:
Morganite Crucible (India) Limited is a subsidiary of the Morgan Crucible Company Plc. UK which has a long heritage of manufacturing quality crucibles and allied products, the Morgan group is diversified in various refractory materials including thermal ceramics, advance materials.
From medical instruments, aerospace, power generation and satellite communications to body armour, trains and fire protection systems: Morgan Crucible’s materials, technical and insulating ceramics and carbon, are fundamental components of many of the modern world’s sophisticated products. The company has  skills, design and technical expertise built over 150 years in the business.
For the year ended Dec 2010, the parent company had GBP equivalent sales of about Rs.7400 cr, pre tax earnings of about Rs.490 cr and post tax profit of around Rs.348 cr
Between July 2010 and June 2011, the stock has appreciated by about 50% on the  LSE.
Current Market cap is about Rs. 6075 cr & EV of about Rs.8000 cr. The stock trades at a 12-month trailing PE ratio of 20.
Product:
What is a Crucible?
A crucible is a vessel made of a refractory substance such as graphite or porcelain, used for melting and calcining materials at high temperatures.
In simple English, a crucible is a pot in which metals etc may be melted.
Advantages:Crucibles have the unique ability to melt, hold and transfer metal using a single vessel, while also allowing incompatible alloy changes to be made simply by switching vessels. This operational flexibility is unchallenged in the industry.
However, even when fixed within the furnace structure, crucibles offer significant advantages when compared to directly-heated fuel–fired furnaces and to electric resistance or induction furnaces with rammed refractory linings. These important benefits include:
1.Lower Metal Loss / Cleaner Metal
2. Alloy Flexibility
3.Significantly Reduced Downtime/Quick Replacement
With over 16 different brands, many different profiles and thousands of items to choose from, MorganMMS, the parent company has one of the most extensive crucible product ranges of any manufacturer, thereby giving users a number of options for their melting applications.
Key User industries:  Auto & Metal
Financials:
Equity: Rs.2.80 cr
Debt: Rs.10.50 cr
Year ended March 2011 ( Consolidated)
Revenue: 84 cr
PBT & Minority Interest: Rs.12.28 cr
NP: Rs.5.72 cr
EPS: Rs.20.42
Current market price: Rs.285
Market Cap: Rs.80 cr
Dividend: Last  declared in 2005. Since then the management has been using internal accruals to beef up capacity.
Key highlights:
1)      Last year, the company had expanded capacity to 6500 MTPA. Current expansion which is in progress with the installation of an additional kiln is expected to take up the capacity to approx 7100 MTPA by Sept 2011. Current production is around 45-50% of the expanded capacity.
2)      Currently the company also operates as a low cost manufacturing base for its worldwide operations  with exports contributing nearly 60% of standalone operations.
3)      The company has a 51% subsidiary, Diamond Crucible Company Ltd with operations in Mehsana, Gujarat which earned a revenue of approx Rs.15 cr and an operating profit of around Rs.3 cr in the year ended March 2011
4)      After buying 25.5% equity held by Greaves Cotton, the Morganite management has pursued expansion aggressively. Revenue on a standalone basis has increased at a CAGR of a little less than 40% over the last 4 years while net profit has grown by approx 45% over the same period, albeit on a small base.
5)      In the year ended March 2011, though revenue increased by 27% on both standalone and consolidated basis, profit after tax decreased due to increase in tax provision by about 50% , exchange loss and higher depreciation.
Valuation:
The stock trades at about 14 times trailing 12 month earnings.It may appear a wee bit expensive   if one takes into account  temporary blips en-route ( like the one last year).
However,the company is clearly on a firm growth path and if one considers the small floating stock (7 lakh shares), parent pedigree and the expected growth over a 2 to 3 year period, it appears a promising investment.

At the time of writing this report, the author /his family have an investment interest in the stock mentioned above. Under no circumstance does the information in this report represent a recommendation to buy or sell the above-mentioned stock.  This report has been prepared and issued on the basis of publicly available information, internally developed data & other sources believed to be reliable. This is just a suggestion solely for information purposes and does not constitute a solicitation to any person to buy or sell a security. While the information contained therein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Readers using the information contained herein are solely responsible for their actions and are advised to satisfy themselves before making any investments. 

3 comments:

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