Pitti Laminations

 

 

This one is a micro-cap stock. This company caters to the electrical sector; this company makes electrical laminations which are used in electrical devices like motors, generators and alternators. Besides lamination this company had gone in for higher value added products in the past two years. This company had its share of problems for the past two years, I will first tell you as to what went wrong for the company.

 

Now because of the global meltdown operations of the company were severely impacted. This company was getting roughly 75% of its revenues from exports and GE was one of their major customers and because of what happened in Europe and USA, the order flow from GE reduced because of which the operations of the company were hit.

Second is that the company made a loss of around Rs 9.5 crore in foreign exchange hedging last year and even in December quarter the company has provided for an extra ordinary expense of about Rs 5.6 crore which is basically cost sharing with GE for some engineering analysis operations.

On the positive side, after what happened to the company on the export front, the company started focusing on the domestic market. The company is getting very good order flow from the domestic electrical manufacturers. A lot of the leading Indian company's like Simens, Alstom, Areva, BHEL are the customers of the company and because of this we have seen a margin improvement in the business of the company, in fact the margins have gone up from about 11% to about 17%, If you see the financials for the first nine months.

Recently company has got an order of about USD 36 million from GE. This is roughly about Rs 160 to Rs 170 crore on the current conversion rate. Now this order is to be executed over the next two years, which means a revenue visibility for the company for the next about Rs 80 - Rs 85 crore at least from GE for the next two years.

And assuming that the company does a revenue of about Rs 250 crore which it did in FY08 and assuming a margin of about 15% operating margin, we get a operating profit of close to Rs 35 crore. At the current market price the marketcap of the company is just about Rs 40 crores. So I believe that even though the company had its share of problems in the past two years, worst may be already built into the stock price which has absolutely failed to move in the past six-nine months, it's hovering between Rs 35 to Rs 40.

I believe that may be from this quarter onwards the better times may return for Pitti Lamination. So from these levels I don't see too much of downside in the stock price. But if you know things go well for this company over the next couple of years, this stock may turn into a multi bagger given the fact that it operates into a sector where the demand is going to be robust at least for the next couple of years.