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Tuesday 23 November 2010

Lloyd Electric & Engineering Ltd - A good value play

Lloyd Electric & Engineering Ltd (LEEL), BSE: 517518,NSE: LLOYDELENG

Market Cap = 238 cr

Book Value = 130, P/B = 0.6

LEEL is largest makers of air-conditioner heat exchanger coils in India. The company is OEM supplier to almost all AC manufacturers in India, and have overseas business of approximately 20% of sales.

Its main products are:

  1. Heat Exchangers
  2. Rail Coach ACs
  3. Window/Split ACs

Manufacturing Facilities:

  1. Bhiwadi, Rajasthan
  2. Kala Amb, Himachal Pradesh

Main Customers:

  1. Blue Star
  2. Voltas
  3. LG
  4. Samsung
  5. Carrier
  6. Emerson
  7. Hitachi
  8. Electrolux
  9. Whirlpool
  10. Daikin
  11. Indian Railways

The company has started manufacturing large ACs for MNC companies since late last year. They are mainly catering to the large (10-15 ton) category, specially in the transport sector. That is ACs for buses and railways. It has bagged orders for Metro Rail ACs. This might actually give the earnings a boost in the future are more and more metros become operational.

I got attracted by the promoter buying and by the fact that it is going at a 8 PE as opposed to 18-20 PE of Hitachi/Blue Star. Not that I am comparing Blue Star with Lloyd, they are not in the same league, but I think Lloyd can be a case of PE re-rating to atleast 10. Also, its BV is 130 and its trading at nearly 40% discount to book, which I am not sure is warranted.

The negatives in the company are:

  1. Consistent negative cash flow for the last three years
  2. Very poor return on capital ratios (RoCE=10%, RoE=8.7%)
  3. OPM of 10% and NPM of 5%

With a expected year end EPS of 12-13 and a PE of 10, I am expecting a 6 month target of around 120-130. In fact, I would really expect it to catch up to its book value of 130 (for comparison, Blue Star has a P/B of nearly 8).

Also, interestingly, it has not really fallen below the 70 mark in the last few months. That added to promoter buying makes me pretty confident that the downside risk is fairly limited here.


  1. Hi Abhishek,

    Any idea about the acquisition they had done in Europe in 2008?

    Also any idea about the frequent equity dilutions by the company?


  2. Hi Ayush, Sorry for the delay in responding.

    The 2008 acquisition (Lloyds Coil Europe) has turned around and reported profits of 1.04 cr as opposed to a loss of 16.4 cr in the previous year.

    The last equity dilution took place in 2005-06 due to conversion of preference shares and issuance of GDR. There has been no subsequent dilutions.