Stock Review: Nitin Fire Protection

 

Mumbai-based fire protection services provider Nitin Fire has witnessed a declining profitability trend in the first nine months of FY11, as raw material and staff costs rose. This also reflected in its volatile stock performance. However, the company is upbeat about the coming quarters with a strong orderbook position and oil likely to flow from the NELP block it had invested in.

Nitin Fire Protection (NFPCL) offers turnkey fire protection services to commercial and industrial clients and has an annual consolidated turn-over of around . 450 crore and a market cap of . 475 crore. The company has diversified by setting up the facility to manufacture high-pressure CNG cylinders in Vizag Special Economic Zone (SEZ).

Since the beginning of FY11, the company has been facing margin pressures, due to rising raw material and staff costs. The operating profit margin, which averaged at around 18.7% during the four quarters of FY10, came down to an average of 13.1% in FY11 so far. However, owing to the strong topline growth, the company reported a 48.5% net profit growth during the nine months compared with the year-ago period.

The company's December quarter numbers were boosted mainly due to sale of a 60% stake in its subsidiary Nitin Cylinders to US-based Worthington Industries. The profit of . 14 crore from the stake sale enabled the company report its highest-ever quarterly net profit of . 19.3 crore. However, it was just 38% higher on a YoY basis. The company is carrying an order book of nearly . 175 crore for its fire protection business to be executed over the next four months. The company is taking extra efforts to improve its visibility in global markets, which has resulted in international orders representing 80% of its cur-rent order book.
The company holds a 10% stake in a NELP-VI oil exploration block in Rajasthan with GAIL and GSPC as operators. The four exploratory wells drilled in the block have discovered a total resource base of 32 million barrels. The production of oil is likely to start in the second half of FY12.

The company's scrip, which had surged in December 2010 on reports of the stake sale in Nitin Cylinders, came down due to weak results. However, in the past few days it has again climbed back. At the current market price of . 75.35, the scrip trades at a price-to-earnings multiple (P/E) of around 9.8 times, excluding the impact of stake sale. The company needs to manage its operating margins well in the coming quarters to benefit from exciting sales growth.