Net Equity Research

Lanco Industries producer of Ductile Iron ( DI ),the preferred pipes for drinking water infrastructure is the only fully backward integrated producer of DI Pipes. It has capacity of 90,000 tonnes of spun DI Pipes, 150,000 tonnes of Pig Iron , 90,000 tonnes of Slag Cement,and 51,000 tonnes of Castings.Besides these it also owns captive Iron Ore Mines and that way its a fully backward integrated DI Pipes producer in India.

Electrosteel castings another major DI Pipe producer owns 57 % of Lanco’s Rs. 39.7 crore equity. Market cap. of Lanco is just about Rs. 270 crores @CMP of Rs. 66. Over the last 3 years Lanco has installed 150,000 tonnes capacity Coke Oven Plant  and 12 MW Power Plant based on Waste Heat Recovery from Coke Oven Plant. Replacement costs of all its plants excluding Captive Iron Ore mines will be above Rs. 500 Crores. Co’s top line for FY 10 is expected to be more than Rs. 700 crores ,growth of about 10 % YOY. Hoewever its bottom line is expected to be Rs. 60 crores a growth of 233 % over FY 09 PAT of Rs. 18 crores.Check out the Q3 results below:

http://www.lancoindustries.com/Lanco%20Q3%20Results.pdf

At Rs. 60 share seems to be undervalued  and is available at P/E of  just 4.5 based on its future FY 10 PAT of Rs. 60  crores or an EPS of RS.15 .All other producers of DI Pipes are quoting at P/E of 10+  includig its parent Electro Steel Castings. Demand for DI Pipes is expected to grow at more than 30 % as Govt. has set aside Rs. 25,000 crores for Drinking Water Infrastructure because of growing urbanisation and inadequate existing  infrastructure. Besides domestic demand there is growing overseas demand too for DI ppes. Most important  for Lanco is its parentage in Electrosteel Castings and there is a distinct possibility of Lanco mergig with its parent. In that scenario the share will be re-rated and will quote at P/E of about 10. 

Buy is recommended on declines near to Rs. 60, as the share has appreciated by 25% during the last 2 weeks.

Note : Lanco Industries was recommended by us in April 2007 at Rs. 35

This report has been prepared solely for information purposes and the information contained herein may not be deemed to be an investment advice. Such information is impersonal and not tailored to the investment needs of any specific person. The information contained herein is not a complete analysis of every material fact representing any company, industry or security. The views expressed may change. While the information contained herein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments and should consult with and rely upon their own advisors whether and how to use such information in making any investment decision

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