Sample  Research Report  
 Indian Hume Pipe    
Vol. No. : 21    Issue No. : 21                             Friday, April 03, 2015

Well-laid pipeline of growth

Strong order book will support this water infra company’s consistent growth. Development of its surplus real estate will offer additional triggers

Related Tables
4Indian Hume Pipe: Financials
4Indian Hume Pipe - Results

Buy Indian Hume Pipe
BSE Code 504741
BSE Group B
NSE Code INDIANHUME
ISIN Demat INE323C01030
Bloomberg INHP@IN
Reuters IHME.BO
Par Value Rs 2
52-week High/Low Rs 368 / Rs 117
Current Price Rs 270 (as on 1st April 2015)

Water is a prime natural resource and a basic human need for survival and existence. Indeed water is fundamental to life. In view of the vital importance of water for human, animal & plant life, for maintaining ecological balance and for economic and developmental activities of all kinds and considering its increasing scarcity, the planning and management of this resource and its optimal economical and equitable use has become a matter of national importance.

One company strongly linked to this business is Indian Hume Pipe Company. The company is considered a pioneer in the field of water industry, it is in this line of business for last more than 85 years.

The Indian Hume Pipe Co. Ltd. (IHPL) is in the business of manufacturing, laying and jointing of pipelines of various pipe materials such as RCC pipes, Steel pipes, Prestressed Concrete pipes, Penstock pipes, Bar Wrapped Steel Cylinder pipes (BWSC), Prestressed Concrete Cylinder pipes (PCCP) etc., which provide infrastructure facility and development for drinking water supply projects, irrigation projects, Hydro Electric Projects, Sanitation and Sewerage Systems.

For over a decade, the company has also been executing on turnkey basis the combined water supply projects i.e. undertaking the complete job of water supply from source to distribution centers which apart from manufacturing, laying and jointing of pipelines included construction of intake wells, water sumps, water treatment plants, water pumping stations, installation of pumping machineries, electro-mechanical works, branch mains, ground level reservoirs, elevated reservoirs, leading to executions of complete systems for water supply to various towns and villages of India.

State / Central government and reputed companies in the private sector are its clients.

The company’s clients include various State / Central governments and their enterprises.

Its central government clients are:

  • Indian Railways
  • Indian Railway Construction Company (IRCON)
  • Rail India Technical And Engineering Services (RITES)
  • Bharat Heavy Electricals Limited (BHEL)
  • National Hydro Power Corporation (NHPC)
  • National Thermal Power Corporation (NTPC)
  • Indian Farmers Fertiliser Co Operative Limited (IFFCO)
  • Satlaj Jal Vidyut Nigam Limited (SJVN)
  • etc

Its State government clients are include:

  • Andhra Pradesh
  • Delhi
  • Gujarat
  • Karnataka
  • Madhya Pradesh
  • Maharashtra
  • Rajasthan
  • Tamil Nadu
  • Uttar Pradesh
  • etc

Among the private companies whom it caters to are reputed companies like L&T, HCC, NCC, Tata, IVRCL, Pritabha Industries, ABB, GMR etc.

Growth opportunities are huge

The population of the country is expected to reach a level of around 139 crore by year 2025 (Source National Water Policy 2002) which will further aggravate the scarcity of water to the people of India. As it is with the growing population demanding more food, more products and higher standards of living, the shortage of drinking water can only get worse. Thus there is a vast scope for improvement in Infrastructural developmental activities in water supply, drainage schemes and sewerage schemes in sanitation segments leading to good scope for company's manufacturing & contracting activities in this field.

Growth of population and the expansion of economic activities inevitably lead to increasing demands for water for diverse purposes i.e. domestic, industrial, agricultural, hydro-power, thermal power, navigation, recreation etc. Domestic and Industrial water needs have been largely concentrated in or around major cities, however the demand in rural areas is expected to increase sharply due to the development programmes of State Governments to improve the economic conditions of the rural mass.

Demand for water for hydro and thermal power generation and for other industrial uses is also increasing substantially. As a result water which is already scarce will become even more scarce in future. This underscores the need for the utmost efficiency in water utilisation and its distribution. Through awareness of efficient water supply system and water quality, water supply can be kept adequate and provide clean & healthy water for our future generations. Hence there is a good scope for many water supply projects coming up in near future and this auger well for the company.

During the last decade, Urban area limits are spreading wider and wider to peripheral areas, but at the same time, the basic amenities like Water Supply, Drainage, etc are not meeting the requirement of more and more urbanization. Apart from the above, most of the rural areas in India fall short of access to drinking water. Government of India, State Governments and local bodies are making best efforts to supply safe drinking water, hence, number of water supply schemes are under anvil. Further to make cities and rural areas more hygienic conditions, lot of sewerage disposals and drainage schemes are also coming up.

Considering the above factors, outlook for the company in water supply, sewerage and drainage segments is encouraging.

Order backlog after removing the slow moving orders is at Rs 2050 crore

In a period where companies are struggling for order book and execution, the company has strong unexecuted order book

The balance value of orders on hand as on Dec 2014 is Rs 2050 crore as against Rs 1828 crore in the corresponding period of the previous year. This is after removing the slow moving orders.

Developing surplus real estate

The company has surplus land in Hadapsur Pune, in the centre of Delhi and in Wadala, Mumbai. All put together the saleable area comes to around 20 lakh sq feet in total.

The company is evaluating options on developing the land, where it will give the land for development to strong organized players and will participate in the sale of the developed property. There will be upfront money in terms of releasing the right to develop the property which the company will receive immediately.

An agreement for development is proposed to be entered with Dosti Reality in respect of :

1) Industrial land at Hadapsar admeasuring about 48288 sq meter.

2) Part of the land at Wadala measuring about 8051.90 sq meter for phase 1 under Slum Rehabilitation Scheme.

3) Agreement for Phase 2 for balance land admeasuring about 6018.43 sq meter under Slum Rehabilitation Scheme.

In view of the development potential of the land and the possibility of development with a suitable developer, industrial land at Badarpur, New Delhi, admeasuring about 27504.78 sq meter hitherto held as Capital Asset is converted into Stock in Trade w.e.f 12/11/2014 at a book value of Rs 399.25 lakh.

These developments will be completed in next 3 to 5 years. Cash flow from the above projects will be substantial and will totally change the balance sheet.

We expect cash flow from these projects over the next 5-7 years to be larger than the company’s current net debt of around Rs 285 crore and market cap of around Rs 650 crore.

Good performance continues

For quarter ended December 2014, sales increased 10% to Rs 265.58 crore and OPM increased from 8.7% to 10.5%, leading to 32% rise in operating profit. After sharper rise in interest and depreciation, PBT growth was 19% to Rs 12.69 crore. After extraordinary gains of Rs 6.28 crore and 73% rise in tax provision, net profit jumped 80% to Rs 12.46 crore.

For nine months ended December 2014, sales rose 22% to Rs 713.53 crore, OPM increased from 9.5% to 10.3% leading to 32% rise in operating profit to Rs 73.41 crore. PBT growth was 21% to Rs 33.10 crore. After extraordinary gains of Rs 9.40 crore and 41% rise in tax provisions to Rs 13.50 crore, net profit jumped 63% to Rs 29 crore.

Valuation

For FY 2015 we expect the company to register sales and net profit of Rs 994.32 crore and Rs 38.54 crore respectively. For FY 2016, we expect the company to register net sales and net profit of Rs 1173.30 crore and Rs 38.99 crore respectively. On a small equity of Rs 4.84 crore and face value of Rs 2 per share, adjusted EPS for FY 2015 and FY 2016 work out to Rs 13.3 and Rs 16.1 respectively. The share price trades at Rs 270, which discounts FY 2016 projected earnings by 16.7 times.

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Indian Hume Pipe: Financials
 
  1103 (12) 1203 (12) 1303 (12) 1403(12) 1503(12P) 1603(12P)
Sales 648.529 517.17 695.79 818.99 994.32 1173.30
OPM (%) 10.4 6.9 8.8 9.2 10.2 10.6
OP 67.63 35.6 60.97 75.08 101.49 124.37
Other inc. 2.23 8.56 5.20 4.44 6.05 7.56
PBIDT 69.86 44.15 66.18 79.52 107.53 131.93
Interest 20.59 23.68 25.37 33.68 47.40 59.25
PBDT 49.27 20.47 40.81 45.84 60.14 72.68
Dep. 7.40 6.94 7.40 7.83 12.36 13.60
PBT 41.88 13.53 33.41 38.01 47.78 59.08
EO 0.00 0.00 0.00 0.00 9.40 0.00
PBT after EO 41.88 13.53 33.41 38.01 57.18 59.08
Total Tax 14.28 4.67 10.56 13.96 18.64 20.09
PAT 27.59 8.86 22.85 24.05 38.54 38.99
EPS (Rs) * 11.4 3.7 9.4 9.9 13.3 16.1
* On current equity of Rs 4.84 crore. Face Value: Rs 2
(P): Projections
Figures in Rs crore
Source: Capitaline Databases

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Indian Hume Pipe - Results
 
  1412(03) 1312(03) Var % 1412(09) 1312(09) Var (%) 1403(12) 1303(12) Var (%)
Net Sales 265.58 242.29 10 713.53 585.00 22 818.99 695.79 18
OPM (%) 10.5 8.7   10.3 9.5   9.2 8.8 4
Operating Profits 27.88 21.09 32 73.41 55.54 32 75.08 60.97 23
Other Income 0.50 0.36 39 2.47 1.46 69 4.44 5.20 -15
PBDIT 28.38 21.45 32 75.88 57.00 33 79.52 66.18 20
Interest 12.40 8.80 41 33.86 24.01 41 33.68 25.37 33
PBDT 15.98 12.65 26 42.02 32.99 27 45.84 40.81 12
Depreciation 3.29 1.96 68 8.92 5.61 59 7.83 7.40 6
PBT 12.69 10.69 19 33.10 27.38 21 38.01 33.41 14
EO 6.28 0.00 0 9.40 0.00 0 0.00 0.00 0
PBT after EO 18.97 10.69 77 42.50 27.38 55 38.01 33.41 14
Total Tax 6.51 3.76 73 13.50 9.59 41 13.96 10.56 32
PAT 12.46 6.93 80 29.00 17.79 63 24.05 22.85 5
EPS* (Rs.) # #   # #   9.9 9.4  
* On current equity of Rs 4.84 crore. Face Value: Rs 2
EO: Extraordinary items
EPS is calculated after excluding EO and relevant tax
Figures in Rs crore
Source: Capitaline Database

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