Skip to main content

Precision Pipes


Precision Pipes is in the business of manufacturing PVC Profiles and Extrusions for the auto and white goods (refrigerators) industries with autos being the dominant segment (90% of revenues) by far.

The company has a prominent customer base including the likes of Maruti, Tata, GM, Toyota etc.  Its white goods customers include the likes of Voltas, Godrej, Videocon etc.  It primarily operates with a cost advantage to global peers and a technological edge to domestic competitors.  It has a technical collaboration with two Japanese companies.  The industry is set to grow at 10%+ over the next decade.

The company reported consistent growth in revenues and operating profits over the last five years – reporting over 50cr in operating profits on revenues of over 200cr in the last financial year.  It used no net debt (as at 30th September, 2011) to finance its operations.

It is primarily dependent on PVC prices, which is dependent on crude oil prices and hence, exposed to its price increases.  It is also dependent on the auto industry, which is largely dependent on the interest rate cycle impacting availability of finance for auto purchases as well as general commodity price increases and other inflationary pressures on customer wallets.  Moreover, it is exposed to INR depreciation increasing the cost of imports.  Further, it doesn’t appear to have the quality standards of international competitors, which would reduce demand from quality-conscious customers.

Apart from the above risks, the company is exposed to the risks of changing customer preferences, government regulations on safety standards, and technological developments in manufacturing.  It is also capital intensive reducing free cash flows available to investors.  

Comments

Popular posts from this blog

On The Radar: India's Small-Cap Equities (Concluded)

We have been running a series of articles titled ‘Under The Radar: India’s Small-Cap Equities’ beginning in December 2011 - and followed up twice - with the last article in December 2013. We would like to conclude this series after updating the small-cap index level and returns, comparing it to our expectations ex-ante, and analysing the current scenario.  Following this, we have also outlined where we may take this blog in the future. The small-cap index closed at 11,087.07 on December 31 st , 2014.  This compares to a level of 6,150.65 in our last article – resulting in an advance of over 80% to date. This is a handsome absolute return by any standard, particularly compared to Indian government bonds, which yielded around 8-9% for the period.  This justifies the conclusion at the end of our previous article that “small-caps in India offer among the most attractive bargains during any time since 2006 and certainly in the entire Indian stock market today...

IFB Agro Industries

IFB Agro Industries is in the business of producing alcohol (70% to 75% of revenues) and marine products. The company is based out of the state of West Bengal (WB), which is well known for its regressive attitudes towards businesses.  In the alcohol segment, it distributes ‘Volga’ vodka, ‘Jubilation’ rum, ‘Benjamin’ brandy (latter two launched recently).  Demand in the Indian Made Foreign Liquor (IMFL) appears to have a promising outlook with growth estimated at about 20% per annum.  It has also installed a new plant to enhance its country liquor production capacity since demand was outstripping supply – however, licenses weren’t granted by the state as at the end of last year.  In the marine segment, it distributes frozen marine products in the major metros through retail chains under the “IFB Royal” brand.  It also has a 48% market share in the shrimp feed trading business.  It had recently enhanced capacities in the marine division includi...

Under The Radar: India’s Small-Cap Equities (Part Three)

In February of this year, we summarised the valuation parameters of the BSE Small-cap Index in India (now the S&P BSE Small Cap Index) - following on from an earlier report we wrote in December, 2011 - and drew certain conclusions. We would like to update the valuation scenario with the data today, review those conclusions, and form new ones based on the available information. The small-cap index closed today (17 th December, 2013) at 6,150.65 with an indicated price to book value of 1.04. The closing value as on February, 2013 was 7,006.73 representing a decline of over 12% as of today. The current index value masks a greater fall of over 27% to a low of 5,085.56 in August, 2013. This represents an unsatisfactory overall performance for those who invested in small caps at the beginning of the year. In our earlier report, we made two assumptions towards the end of our report to form a conclusion as to prices then:          ...