1

Stock Data

Sector Iron & Steel

Face Value(Rs) 10.00

52 wk. High/Low (Rs.) 72.00/27.00

Volume (2 wk. Avg.) 12000

BSE Code 532804

Market Cap(Rs in Mn) 1751.3

Financials (Rs in Mn) FY10A FY11E FY12E

Net Sales 3993 4392 4831

EBIDTA 736 806 884

PAT 300 337 378

EPS 9.52 10.70 12.02

P/E 5.83 5.19 4.62

TECHNOCRAFT INDUSTRIES (INDIA) LTD

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SYNOPSIS

We initiated the coverage of Technocraft

Industries Ltd and set a target price of

Rs.67.00 for medium to long term gains.

Technocraft Industries (India), the parent

company of the Technocraft group, is one of

the leading manufacturers of Drum Closure

including Title Seal Flanges and Plugs, Tite

Seal Gaskets, Tite Seal Leak Locks Plugs,

Octagon base Drum Flanges & Auto Closure

Systems.

Technocraft enjoys a significant position in

five main business industries viz., Drum

Closures, Pipes & Tubes, Engineering

Services, Scaffolding systems & accessories

and Cotton Yarn. Several products in

computer software and information

technology have been added recently.

Technocraft is future pleased to announce

significant growth in Drum closure sales

with a strong order book. The increased sale

is due to substantial de-bottlenecking and

improvement in efficiency of Drum Closure

manufacturing facility.

1 Year Comparative Graph

TECHNOCRAFT INDUST BSE SENSEX

V.S.R. Sastry

Equity Research Desk

vsrsastry@firstcallindiaequity.com

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

drsastry@firstcallindia.com

C.M.P: Target Price: Rs.55.55 Rs.67.00

Share Holding Pattern

Date: 24 June 2010

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Peer Group Comparison

Name of the company CMP(Rs.)

Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

TECHNOCRAFT

INDUSTRIES (INDIA)

LTD 55.55 1751.3 9.52 5.84 0.45 5

USHA MARTIN LTD 85.25 25979.2 3.03 28.1 2.33 100

GOODLUCK STEEL

TUBES LTD 28.65 536.4 8.23 3.48 0.84 15

MSP STEEL & POWER

LTD 42.60 2475.1 5.52 7.72 1.23 -

Investment Highlights

FY10 Performance

Net profit of the company has increased at yoy 335.7% Rs.300.27mn from

Rs.68.91mn of same period of last year. Total revenue for the year stood at

Rs.3993.19 mn from Rs.4388.51 which is 9% decreased than that of a year ago.

EPS for the year stood at Rs.9.52 per equity share of Rs.10.00 each.

Operating profit of the company stood at Rs.736.61mn. OPM for the year stood at

18%. Expenditure of the company decreased 14.4% YoY to Rs.3331.00 mn.

Interest expenses for the year stood at Rs.57.92mn.

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Results Updates (Q4 FY10)

The bottomline of the company for the quarter stood at Rs.30.26mn from Rs.-

70.19mn of same period of last year. Total revenue for the fourth quarter stood at

Rs.1089.65 mn from Rs.997.27 which is 9% increased than that of a year ago.EPS

for the quarter stood at Rs.0.96 per equity share of Rs.10.00 each.

Expenditure of the company decreased 5.5% YoY to Rs.942.99mn from

Rs.998.36mn of same period of last year. Interest expenses for the quarter stood

at Rs.13.68mn. OPM & NPM for the quarter stood at 15% and 3% respectively.

Quarterly Results - Standalone (Rs in mn)

As At Mar-10 Mar-09

Net sales 1089.65 997.27

PAT 30.26 -70.19

Basic EPS 0.96 -2.23

Equity Capital 315.27 315.27

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Commencement of Commercial Production in China(100% Subsidiary)

Technocraft Industries announced the start of commercial production in its wholly

owned subsidiary factory Anhui Reliable Steel Technology Co., Ltd. (ARST) in

Anhui Province in China.ARST has sucessfully commenced production of

scaffolding components from 1st January achieved stable commercial

production.The rated capacity will be achieved in about one month.ARST is likely

to give substantial support Technocraft Scaffolding Division by increasing both top

line and bottom line.

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About 15MW Power Plant

Technocraft also announced the commissioning of 15mw power plant. About 50%

capacity will be consumed internally and balance 50% will be sold to MSTCL.

The present sale will be done on 22 kv line. Technocraft is also erecting suitable

Switch Yard with an investment of about Rs.10 crores(financed internally) for

supplying power to the grind on open acess basis on 100 kv line.This will give

substantially better sale price.Captive power plant is likely to add approximately

Rs.10 crores to the PAT of the company. Plans are afoot for doubling the capacity

of power plant by installing another 15mw power plant at the same site as an

independent power plant for supplying powerto the grid.Necessary coal linkage

permission has also been received.

About Joint Venture with Canadian Company

Technocraft has signed a joint venture with world famous Canadian form work

company Tabla Construction Systems Inc., who has developed one of the most

modern form work systems in the world. With the present spurt in infrastructure

projects, Tabla System is likely to be highly successful.This system of form work is

one of the fastest and most economical to erect.

The Tabla JV will substantially expand the base of Technocraft Scaffolding

Division,since now the company will be able to offer scaffolding and form work to

the clients under one roof.

Future Prospectus of Company

Technocraft is future pleased to announce significant growth in Drum closure

sales with a strong order book. The increased sale is due to substantial de-

bottlenecking and improvement in efficiency of Drum Closure manufacturing

facility.

The textile division of Technocraft consisting of yarn mill and garment division has

also registered substantial growth in production and sale and is now enjoying a

strong order book.Technocraft is getting the benefit of increase manufacturing cost

in Tirupur.

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Company Profile

Technocraft Industries was incorporated on October 22, 1991 as Technocraft

Industries (India) as an unlimited company under part IX of the Companies Act,

1956. Subsequently the company was re-registered as a public limited company and

received a certificate for re-registration on October 28th, 1992.

Technocraft Industries (India), the parent company of the Technocraft group, is one

of the leading manufacturers of Drum Closure including Title Seal Flanges and

Plugs, Tite Seal Gaskets, Tite Seal Leak Locks Plugs, Octagon base Drum Flanges &

Auto Closure Systems.

Technocraft, a multi product and multi national group, that was established in 1972

by a group of technologists with the aim of manufacturing high precision and

sophisticated products , mainly for discerning worldwide markets.

The Technocraft Group is promoted, managed and has grown under dynamic

leadership and guidance of S K Saraf and S M Saraf, both graduates from Indian

Institute of Technology.

Technocraft enjoys a significant position in five main business industries viz., Drum

Closures, Pipes & Tubes, Engineering Services, Scaffolding systems & accessories

and Cotton Yarn. Several products in computer software and information technology

have been added recently.

The company is an ISO 9002 certified company having its head office in Mumbai

(India) & overseas offices & warehouses in Manchester (UK), Lodz (Poland) &

Budapest (Hungary); Chicago (USA) & New Orleans (USA).

Technocraft is now a government recognized Foreign Trading House due to its

performance in foreign trade and managerial resources.

The Technocraft family consist of more than 3000 skilled workmen, technicians and

technologists all working towards the common goal of giving the best quality

product to it's customers, all over the world.

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The manufacturing process is continuously updated with latest technology to yield

higher productivity with improved quality product. Our manufacturing plants are

located at five locations near Mumbai , India on a built up area of over 50,000

square meters.

The company launched a major export drive in 1977. It was recognised as an export

house by government of India in 1979. The company won a number of awards for

export excellence including te “Best Export Performance” by Prime Minister of India.

Technosoft Information technologies (India) Limited (subsidiary co) is registered with

the Nasscom.

Different subsidiaries of the company

Indian Subsidiaries

• Technosoft Information technologies (I) Limited

• Techno Exports Private Limited

• Danube Fashions Limited

Foreign Subsidiaries

• Technocraft Trading Spolka, Z.O.O Poland

• Technocraft (Hungary) KFT

• Technocraft International Ltd

• Bopp A. G.

• CAE Systems GmbH

• Impact Engineering Solutions Inc.

• Technocraft Australia Pty. Ltd.

Product range

Today Technocraft is the second largest producer of Drum Closures in the world

with a production of over 25 Million sets of Drum Closures annually.

• Tite-Seal Flanges and Plugs

• Tite-Seal Metal and Plastic Capseals

• Tite-Seal Gaskets

• Leak Lock System

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• Tite-Seal S-insertion of Octagon Base Drum Flanges.

• Auto-Seal Closure System.

• Dies

• Clamps

Financials Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY09A FY10A FY11E FY12E

Description 12m 12m 12m 12m

Net Sales 4,388.51 3,993.19 4392.51 4831.76

Other Income - 74.42 78.14 82.83

Total Income 4,388.51 4,067.61 4470.65 4914.59

Expenditure -3,891.86 -3,331.00 -3664.10 -4030.51

Operating Profit

496.65 736.61 806.55 884.08

Interest -107.35 -57.92 -60.82 -63.86

Gross profit 389.30 678.69 745.73 820.22

Depreciation -236.45 -227.43 -238.80 -250.7

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Profit Before Tax 152.85 451.26 506.93 569.48

Tax -83.94 -150.99 -169.62 -190.5

Net Profit

68.91 300.27 337.31 378.93

Equity capital 315.27 315.27 315.27 315.27

Reserves 3,255.92 3,554.37 3,891.68 4,270.62

EPS

2.19 9.52 10.70 12.02

Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) Sep-09A Dec-09A Mar-10A June-10E

Description 3m 3m 3m 3m

Net sales 995.84 1,019.71 1,089.65 1111.44

Other income 101.04 15.13 20.01 21.01

Total Income 1096.88 1,034.84 1,109.66 1132.45

Expenditure -838.48 -902.69 -942.99 -933.61

Operating profit 258.4 132.15 166.67 198.84

Interest -16.2 -10.39 -13.68 -14.36

Gross profit 242.2 121.76 152.99 184.48

Depreciation -51.67 -54.4 -62.31 -65.43

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Profit Before Tax 190.53 67.36 90.68 119.05

Tax -21.21 -28.69 -60.42 -47.62

Net Profit 169.32 38.67 30.26 71.43

Equity capital 315.27 315.27 315.27 315.27

EPS 5.37 1.23 0.96 2.27

Key Ratio

Particulars FY09 A FY10 A FY11 E FY12 E

EBIDTA % 11% 18% 18% 18%

PAT % 2% 8% 8% 8%

P/E ratio (x) 25.41 5.83 5.19 4.62

ROCE - % 6% 10% 11% 11%

ROE - % 2% 8% 8% 8%

Price/Book Value 0.49 0.45 0.42 0.38

Debt Equity Ratio 0.27 0.26 0.25 0.24

Book Value (Rs.) 113.27 122.74 133.44 145.46

EV/EBIDITA (x) 3.53 2.38 2.39 2.38

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Charts:

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Outlook and Conclusion

• At the current market price of Rs.55.55, the stock trades at a P/E of 5.19x and

4.62x for FY11E and FY12E respectively. On the basis of EV/EBDITA, the stock

trades at 2.39x and 2.38x for FY11E and FY12E respectively.

• EPS of the company is expected to be at Rs.10.70 and Rs.12.02 for the earnings of

FY11E and FY12E respectively. Price to Book Value of the stock is expected to be

at 0.42 and 0.38 respectively for FY11E and FY12E.

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• Technocraft is future pleased to announce significant growth in Drum closure

sales with a strong order book. The increased sale is due to substantial de-

bottlenecking and improvement in efficiency of Drum Closure manufacturing

facility.

• The textile division of Technocraft consisting of yarn mill and garment division has

also registered substantial growth in production and sale and is now enjoying a

strong order book.Technocraft is getting the benefit of increase manufacturing cost

in Tirupur.

• With increasing confidence in its margin sustainability, we recommend ‘BUY’ in

this particular scrip with a target price of Rs.67.00 for Medium to Long Term

Gains.

Industry Overview

The steel industry in India has been moving from strength to strength and according

to the Annual Report 2009-10 by the Ministry of Steel, India has emerged as the fifth

largest producer of steel in the world and is likely to become the second largest

producer of crude steel by 2015-16.

Recently, Steel Minister, Mr Virbhadra Singh said that India will become the world's

second-largest steel producer by 2012, more than doubling its capacity to 124 million

tonnes (MT) as part of the push being given to assist overall infrastructure

development.

Production

Steel production rose 4.2 per cent to reach 60 MT in 2009-2010, according to the

Ministry of Steel.

The National Steel Policy 2005 had projected an annual steel consumption growth of 7

per cent based on GDP growth rate of 7-7.5 per cent and production of 110 MT of

crude steel by 2019-2020. Nonetheless, with the current rate of ongoing greenfield and

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brownfield projects, the Ministry of Steel has projected that these growth trends are

likely to be exceeded and it is envisaged that in the next five years demand will grow at

higher annual average growth rate of over 10 per cent as compared to around 7 per

cent growth achieved between 1991-92 and 2005-06.

Moreover, according to the ministry, the crude steel production capacity in the country

by 2011-12 will be nearly 124 MT.

According to the Ministry of Steel, 222 memorandum of understanding (MoUs) have

been signed with various states for planned capacity of around 276 MT. Major

investment plans are in Orissa, Jharkhand, Chattisgarh, West Bengal, Karnataka,

Gujarat and Maharashtra.

According to the Annual Report 2009-10 by the Ministry of Steel, domestic crude steel

production grew at a compounded annual growth rate of 8.6 per cent during 2004-05

and 2008-09.

Consumption

India's steel consumption rose 8 per cent in the year ended March 2010, over the

same period a year ago on account of improved demand from sectors like automobile,

infrastructure and housing. The country’s steel consumption increased to 56.3 MT in

the 12 months to March 2010 from 52.3 MT in the previous year, as per the Ministry

of Steel.

Investments

A host of steel companies have lined up major investment proposals. Furthermore,

with an expanding consumer market, the Indian steel industry is likely to receive huge

domestic and foreign investments.

The domestic steel sector has attracted a staggering investment of about US$ 238

billion, according to the Minister of State for Steel, Mr A. Sai Prathap.

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This consists of nearly 222 MoUs signed between the investors and various state

governments mostly in the states of Orissa, Jharkhand, Chhattisgarh and West

Bengal.

• SAIL is planning to set up a 12-million tonne plant in Jharkhand.

• In December, India’s largest engineering conglomerate Larsen & Toubro (L&T)

and state-owned Nuclear Power Corporation of India Limited (NPCIL) formed a

US$ 373.2 million joint venture for specialised steel and forging products.

• Stainless steel manufacturer and exporter, Varun Industries, is setting up a

US$ 171.8 million stainless steel-cum-alloy steel plant at Rohat, Jodhpur.

• Tata Steel has entered into a joint venture with Japan’s Nippon Steel for

production and sales of automotive cold-rolled flat products at Jamshedpur.

The JV is expected to invest US$ 400 million to set up an automobile venture in

India.

• Steel major, JSW Steel has earmarked a capex of US$ 1.6 billion for 2010-11

and plans to increase capacity of its Bellary plant in Karnataka from 7 MT to 10

MT by end of 2010-11.

Government Initiative

As per the Press Information Bureau, during 2009, the government took a number of

fiscal and administrative steps to contain steel prices. Central value added tax

(CENVAT) on steel items was reduced from 14 per cent to 10 per cent with effect from

February 2009.

Moreover, in the Union Budget 2010-11, the government has allocated US$ 37.4

billion to the infrastructure sector and has increased the allocation for road transport

by 13 per cent to US$ 4.3 billion which will further promote the steel industry.

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should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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