Pennar Industries has a Diversified Market
Share price movement
52 Weeks H/L
( 21 Oct 10 )
( 9 Aug 11 )
Delivery / Var+ELM %
share price movement
Q1 not good
Pennar Industries has not produced good results for the quarter ended 30.06.11 as compared to the quarter ended 31.03.11. Revenue dropped from Rs.301.89 crore to Rs.265.42 crore. Revenue for the full year 2010-11 was at Rs.1070.07 crore. Net profit dropped from Rs.19.13 crore to Rs.17.88 crore. Net profit for the whole year 2010-11 was at Rs.70.98 crore. Operating profit margin increased marginally from 11.68% to 12.69%. Net profit margin increased marginally from 6.34% to 6.74%. The company is operating in the iron & steel and interim products sector. The shares of Pennar Industries are traded in the Indian stock markets at Rs.37.50 now (16.11.11). The highest price recorded by the shares of the company in the last one year was at Rs.55.60 (21.10.10) and the lowest price was at Rs.36 (09.08.11). In other words, the present share price is close to the company’s lowest price in the last one year. This gives a temptation to the investors to buy the shares of Pennar Industries at the current price level. Is this temptation justified? Let us analyse. Nirupender Rao is the Chairman of Pennar Industries.
A subsidiary of Pennar Industries namely Pennar Engineered Building Systems Ltd has plans to set up a production facility in Rajasthan State to cater to the Northern region. It will be investing Rs.65 crore to create a capacity of 30000 tonnes per annum which will later on be increased to 60000 tonnes per annum. The new facility will be ready to deliver during the next fiscal year. This new facility will reduce freight charges for the company by Rs.4500 per tonne. It also has plans to increasing its production capacity in its plant at Hyderabad. Recently the company has doubled its capacity of the Hyderabad facility to 60000 tonnes per annum. Now the company is adding fresh capacity of 30000 tonnes per annum at an investment cost of Rs.25 crore. The new capacity will be ready in another three to four months time. Pre-engineered market in India is estimated at around Rs.4000 crore and is growing at around 17% every year. Warehousing, logistics and manufacturing segments are shifting increasingly to pre-engineered segment from the concrete segment.
Plans to expand to Africa
Pennar Industries has bagged an order worth Rs.23.5 crore from Reliance Retail for building its first of the fifteen distribution centres in Pune. The project is to be completed in five months time. The project involves construction of 40000 square feet of space. Pennar Industries’ subsidiary achieved a sales turnover of Rs.165 crore last year 2010-11 and during the current year 2011-12, it is targeting a figure of Rs.250 crore. In the next two years, the company targets a sales turnover of Rs.500 crore. The company is also considering setting up a production facility in Africa to where it exported products worth Rs.18 crore. The company is also considering launching a new product for the green eco-friendly buildings.
Six production facilities
Pennar Industries manufactures various products for railways, automobile, infrastructure and white goods sector using various grades of stainless steel and steel. It has six production facilities in Pattencheru, Isnapur, Sadashivpet in Pune, Chennai, Hosur and Tarapur. It has a total capacity of 275000 tonnes per annum. It has various products that include purlins, open-span built up sections, commercial centres, roofing & wall panels for warehouses, aircraft hangars, multi storied buildings and stadiums. The company started initially with manufacture of cold rolled steel strips. It has now graduated to special construction and engineering products manufacturer.
Diversified market advantage
The company enjoys the advantage of spreading its risks through various industries to which it caters with its specialised products. Even if one or two industries are not doing well, other industries will compensate for the loss. In other words, the company enjoys a well diversified market for its products. Pennar Industries has conscientiously reduced the share of cold rolled steel strips from 50% of the total sales in 2006 to 13% now. The company earns a third of its revenue from its railway division. The rest 54% of its revenue comes from electric, building, white goods and engineering segments.
New concept taking roots
The idea of pre-fabricated third party structures is relatively new in India. But this concept is gaining ground because of the time and cost efficiencies. There are very few players in this area like Zameel Steel, Kirby and Tata Bluescope. Pennar Industries has entered into this growing field only recently. But the company has secured important orders from companies like Bombay Rayon, UltraTech Cement and JSW Steel. Based on the growing market, Pennar Industries plans to triple its capacity to one lakh tonnes per annum in another two years time. It will increase the market share of the company to a great extent. For the last five years, the company’s sales turnover has been growing at a CAGR of around 30%. Inspite of increasing cost for the commodities, the company has been able to maintain its operating margins at a relatively safe level of around 12% to 15%. It has a debt equity ratio of just over 1.
Good company to invest for medium and long term
The shares of Pennar Industries can be purchased at the current market price for medium to long term holding for the following reasons:
- The company has diversified its market
- The company smells opportunities in new areas and capitalises on it
- The company is not afraid of competition
- Inspite of increasing commodity prices, the company is able to maintain its margins
- Its has a good management
- Its shares are traded close to its lowest price in the last one year
- The company has altered its product mix to its advantage
- The company responds to market needs quickly by aligning its products portfolio in tune to the market requirements
The company embarks on capacity addition whenever it finds opportunity for more sales and profits
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