LONG TERM BUY - NELCAST

After scanning through hundreds of stocks out there I came across Nelcast as a company which is doing pretty well and more importantly it’s stock price has escaped the bear hammering to a very large extent – if we just look at last 3 month’s stock price of Nelcast you will know what I am talking about.

1.Nelcast Ltd share price on June 1, 2011 Rs.98.25/share
2.Nelcast Ltd share price on June 26, 2011 Rs.109/share

It may be noted that in the last 3 months the share price did not go below Rs.94.50. Wow! Blue-chips are sliding downhill but not Nelcast. That’s what I call a stocks power to withstand the recent bourse-shattering quakes – not exactly an anti-bear stock but indeed a stock that could bravely fight the bears without being brutally bruised.

Nelcast having a market capitalization of Rs.188 crores is one of the largest producers of Spheroidal Graphite (SG) iron castings in India. As a world class automotive castings manufacturer it has 200 different types of castings in its repertoire. The major automotive components it manufactures are Cylindrical Blocks, Flywheels, Hubs, Transmission Case, Axle Housings etc. It also manufactures insets required for concrete sleepers used by railways. The other non-automotive products manufactured are pipe fittings used in various industries.

Nelcast Limited has two plants – one in Guidur, Andhra Pradesh and one in Ponneri, Tamil Nadu, total installed capacity being around 150000 M.T. per annum. Ponneri factory has a state-of-the-art machine shop and a Kunkel Wagner automatic high pressure moulding line, making it one of the first foundries in India to have fully automatic moulding technology. This provides castings with improved dimensional accuracy, surface finish and soundness

Rising labour costs and environmental concerns have forced foundries in developed countries to move production to countries like India and China. Consequently leading players like Nelcast will be presented with recurring opportunities to export their products to developed countries.

The company currently boasts of marquee clients like Tata Motors, TAFE, Mahindra & Mahindra and Eicher. Major export customer are Arvin Meritor (Sweden) & Dobbie Dico (Australia).

During the year, the Company recorded Net Sales of Rs.507.40 crores as against Rs.319.61 crores in 2009-10 registering a growth of 59%. Profit Before Tax (excluding extra-ordinary items) increased to Rs. 20.43 crores during the year 2010-11 from Rs. 9.99 crores in 2009-10 representing an increase of 104%. Even the recent Q1FY12 results were pretty good – total revenues increased by 64 per cent to Rs.156 crores as compared to Rs.95 crores in Q1FY10. Net Profit increased by an astounding 277.8 per cent to Rs.7.86 crores as compared to Rs.2.08 crores in Q1FY10.

During the year FY2011, the company has made a substantial profit after tax of Rs. 75.09 Cr due to sale of shares held in Nelcast Energy Corporation Ltd. This extra-ordinary item has helped the Company to increase its net worth substantially.

The company’s share capital stood at Rs.17.40 crores on which it does business a tad above Rs.500 crores and it has reserves of over 10 times its share capital. The company was sitting on a nice pile of cash balance of Rs.52 crores as at end fiscal 2010-11. The company’s ROE and ROCE is a tad above 46 pc! The company’s leverage is low at 0.50 and as such there is enough scope to fund its capex plans at the appropriate time. Company’s promoters have great confidence in their ability to take the company to greater heights as is evidenced by their high stake in the company to the tune of 72.07 per cent.

Going forward and looking to its past track record it would not be unreasonable to expect Nelcast to continue maintaining margins in the range of 12-13% due to improving product-mix , higher realizations & margins on machined castings coupled with ability to pass on rise in input costs to customers, albeit with a lag.

The company has very ambitious plans to increase its capacity to 2,50,000 tonnes and become the largest foundaries in the world. All seems to be well and hopefully all will be well with Nelcast.
( source: multibagger )