Market Update
In the coming week we expect the market to weaken and move down further. Therefore we have not mentioned the price of the stock in the report. Users are requested to invest partially if they wish to on every fall which would reduce the average purchase price downwards.

It is very important that you read the Conclusion and additional note at the end of the report.

The Anup engineering limited

Current Market price-: 630 Rs

Originally incorporated in the year 1962 under the Companies Act, 1956, The Anup Engineering Limited was formed on account of demerger of the company. Parent holding company M/s. Arvind Limited had decided to demerge its subsidiary M/s. The Anup Engineering Limited as separate entity.

Anup has incessantly worked to maintain maximum customer satisfaction, keeping its values of responsiveness, delivery commitment and unparalleled quality always at the forefront. Its core strength is its young, highly-skilled and adaptive work-force that has allowed it to not just grow, but truly evolve over the years.

The company’s production plant in Ahmedabad, India, is 45,000 square meters and has six heavy and four light fabrication bays. The fact that we can build equipment ranging from 20 MT to 450 MT with equal ease attests to our facility’s high-end and adaptable character. Further company is ISO 9001:2008, ISO 14001:2004 and BS OHSAS 18001:2007 certified.

With decades of fabrication experience, The Anup Engineering has honed a high degree of expertise in the core welding process. Over 1800 competent welding methods and a high level of knowledge in various materials and welding processes are available at the company.

Its ongoing effort to automate the majority of the welding procedures it employs is a distinguishing feature that gives it a competitive edge while also ensuring the greatest level of quality.

Business/Products

With its extensive product range of Heat Exchangers, Reactors, Pressure Vessels, Columns & Towers, Industrial Centrifuges, and Formed Components, the company serves a wide range of process industries, including Oil & Gas, Petrochemicals, LNG, Fertilizers, Chemicals, Pharmaceuticals, Power, Water, Paper & Pulp, and Aerospace. Due to rising demand for recovering useful energy, lowering costs, and minimizing environmental pollutants, the heat exchangers industry has seen substantial technological improvements in recent years. These advancements include the use of new and more efficient heat exchangers, as well as innovative heat transfer equipment and the integration of heat exchanger systems into diverse industrial processes.

The products are mainly divided across 5 divisions

Static Process Equipments
Technology Products
Dished Ends
Engineering Services
Industrial Centrifuges

Under Static Process Equipments company manufactures

Heat Exchangers -: Shell and tube heat exchangers with high pressure and unique metallurgy are available from the company. Sulphur Condensers, Bayonet Tube Exchangers, Catalyst Coolers, Transfer Line Exchangers, Evaporators, High Pressure Feed Water Heaters, Surface Condensers, Waste Heat Exchangers, Multi-Tube Hairpin Exchangers, RG Boilers, and other heat exchangers are among the company’s offerings.

Reactors-: Oil and gas refineries, as well as the petrochemical, fertilizer, and chemical sectors across the world, can benefit from the company’s high pressure, high temperature, and high metallurgical reactors.

Pressure Vessels -: The company is well-equipped to provide a wide range of pressure vessels for a variety of activities in the oil and gas, petrochemical, fertilizer, and chemical sectors. Cladded vessels, vessels with high thicknesses and high pressure, and pressure vessels in unique metallurgies are among the company’s offerings. Most gas purification technology licensors have allowed the company to manufacture crucial equipment such as Pressure Swing Adsorbers and Temperature Swing Adsorbers (PSA & TSA).

Columns & Towers-: Company offers various columns and towers for the energy sector.
Custom Fabrication -: Company also offers custom fabrication as per clients needs.

Technology Products

Helix Changer

Lummus Technology’s Helixchanger, a shell and tube heat exchanger with helical baffles, is a patented device. Over conventional shell and tube heat exchangers, these highly efficient exchangers have important advantages such as decreased pressure drop, fewer vibrations, greater heat transfer co-efficient, and smaller footprint.

Anup Engineering has a technological partnership with Lummus Technology for the production of Helixchangers, which is aided by its knowledge and facilities, which are well-suited to such essential manufacturing. Its methods have been fine-tuned and optimized to allow for the production of Helix angles ranging from 5 to 40 degrees.

EMBaffle Heat Exchanger

S&T Heat Exchangers have advanced technology, notably for gas applications.

Brembana & Rolle, Italy owns the patent on this technique, and ANUP is the only licensee for the Indian market. Developed by Shell to solve fouling concerns in crude pre-heaters, it now provides for the management of operational issues like as vibrations, corrosion, and fouling, among others.

Industrial centrifuges

The company’s industrial centrifuges have been in use for more than three decades in the chemical, fine chemical, starch, and pharmaceutical sectors, and are known for their toughness and durability. From basket centrifuges (top and bottom discharge) to horizontal peeler centrifuges, the company offers a comprehensive line of industrial centrifuges.

Clientele

Capex

CAPEX for the development of the clean room at Odhav will be completed in May. It is almost already complete and the bay is commissioned already. The clear room facility powers Anup into the elite group of global fabricators having the necessary infrastructure for fabricating exotic materials like titanium and tantalum. It will open the doors for the new product as well as new market segments.

As far as Kheda is concerned, the phase 1 construction work in Kheda is also going on in full swing and is all tracked for commissioning in H2 FY23, sometime towards the end of quarter 3 and beginning of quarter 4. The CAPEX of Kheda would be in the range of Rs. 120 crores, the first phase. Further Kheda phase 2 and 3 will be spread over 3 to 4 years with total capex of Kheda, all phases put together would be close to around Rs. 275 crores.

Order Book

Company has diversified order mix from various industry segments including refineries, growing share from petrochemicals, paper and pulp, and new age industries like renewables and offshore. Company also has highest average equipment value in the product mix in the order mix on hand. The proportion of specialty and proprietary equipment is the highest in the order book. Company has added newer customers from markets like South America, Europe and Middle East which will bode well for the company in the years to come in future. The inquiry pipeline continues to remain robust, however, the margins are expected to be impacted due to the volatility in the metal prices which all of us are aware.

As of latest company has all time high opening order book of approx. Rs 400 Cr. Additional orders worth Rs 25 Cr already received since 1 April till date.

Financials

For Q4FY22

Net Sales stood at Rs 99.98 crore in March 2022 down 24.69% from Rs. 132.76 crore in March 2021.
Quarterly Net Profit stood at Rs. 32.36 crore in March 2022 up 17.44% from Rs. 27.55 crore in March 2021.
EBITDA stood at Rs. 26.16 crore in March 2022 down 28.64% from Rs. 36.66 crore in March 2021.
TAEL EPS had increased to Rs. 32.71 in March 2022 from Rs. 27.03 in March 2021.

For the Year Ended March 2022

Revenue for the year stood at Rs. 288 crores which was up by 3% for FY22 as compared to the corresponding previous year FY21.
The revenue was impacted due to multiple challenges at the supply chain both at the vendor as well as customer sides including due to COVID delays, however, company was able to continue and maintain healthy EBITDA margins.
EBITA margins stood at 24.3%.
PAT stood at Rs. 62 crores up by 16% on a Y-o-Y basis for FY22.

Managements comments and future outlook

For the coming year on account of completion of the odhav facility and additional capex company is carrying, management expects a growth of about 30% with topline anywhere between Rs. 380 and Rs. 400 crores.

Refining and petrochemical facilities in India are anticipated to continue to have CAPEX in the next 3 to 5 years. This is already occurring, and we can clearly see what is going on. The firm is continuing to gain traction, but it is now focusing on the worldwide market as a whole and beginning to expand its exports. According to management, this is one area where they are concentrating their efforts. Furthermore, one of the areas where the firm has already begun initiatives is with their blue hydrogen project, which is the first of its kind.

Chemicals, as well as other industries such as fertilizers, gases, geopower, green hydrogen, and green ammonia, are being pursued by the company. These are the areas where the corporation intends to diversify, as there are chances accessible on a worldwide scale.

Reasons for not achieving estimates as provided by the management in past

Back in June 2020 meeting management had expressed its visionary target to achieve Rs. 1,000 crore revenue by 2025. As of now we are in 2022 with only 3 years remaining and the current topline of the company is close to 300 crores. Going by the ambitious management estimate of 1000 cr topline it is more than 3x of the current topline which seems a very distant target which can be achieved in the given timeline. To this management has provided clarification which is as mentioned below.

Last 2 years had been very difficult because of COVID. Company did grow in FY21 but in the last year the growth has been actually flattish kind of a transition into FY22 and the main reason for this as mentioned in earlier call was the impact on the supply chain which was something quite underestimated by the company and also the impact of that on the customer side, the delays that happened at the customer side, the project sides were customers refrained from accepting the equipment’s. This kind of delays were not expected nor estimated. Thus as

The other thing is you were to look at which is different in this year, how it makes it different is that never before have we opened the order book at this number at such a high order book. Last year, I think it was somewhere about Rs. 256 crores, this year we have opened that something like around Rs. 400 crores and subsequently also we have booked of orders and that the order flows looks to continue going forward as well. So, that gives us the full order to plan our kind of equipment, be engineering, procurement and ensure that the material and all, whatever inputs are required for fabrication of our equipment are all available on time. I think that is one key element that is required. Also, if we were to look at the last few years, because of the order book was lower, we were looking to deliver ahead of schedule and sometimes in our industry that doesn’t really hold good whereas this time we have orders where the deliveries are going to happen make this required in this financial year in FY23. So, that is going to be the difference in this year.

Thus as a result the timeline has got extended by 2 years and now the managements expects to achieve topline of 1000 crs by 2027. Going by the numbers it turns out that management expects 30% cagr in topline over next 5 years.

(Management has given guidance to achieve 1000 crs topline which would be very difficult to access since the time frame given for achieving the same is 2027, 5 years from now. Therefore in order to reassess the standing of the company we would need atleast another 2 years thereby stretching the timeframe of investments to atleast 4 years. Therefore users are requested to not put queries regarding the price movements as well as fundamentals before the end of 2 years from the date of publishing this report other than some exceptional circumstances.)

Conclusion

The Anup engineering limited is a completely debt free company part of Arvind Limited flagship company of the Lalbhai Group. The company is engaged in manufacturing Heat Exchangers, Reactors, Pressure Vessels, Columns & Towers, Industrial Centrifuges and Formed Components. For the coming year management has given an optimistic guidance of achieving 30% growth in the revenue with a topline of around 400 crores. However as per the management the ebita margins may be impacted on account of increase in fuel prices as well as various metal prices but management expects those ebita margins to normalise from the next financial year. This may impact the bottomline where despite increasing profitability we may see the net profit stagnant. Thus risk averse investors can visit the company on a later date where there are green shoots in net profit visible. As for now the stock of the company trades at 10 price to earning multiples which is quite low as compared with its peers such as ISGEC heavy engineering, L&T etc making it worth exploring.

Smallcap heavy engineering company

The Anup engineering limited