Cenlub Industries Ltd.

(CIL)

23 November 2012 Key Data (as on 23-Nov-12)

BSE 522251 ISIN INE627F01011
Face Value 10.0 Mkt Cap (Rs. mn) 140.1
CMP: Rs. 34.4 Current P/E 5.2 Current P/BV 1.2
Industry: Industrial Machinery 30 day daily trading
52 week low-high 22.50-46.00 2387
BSE Group / Index: B volume (nos)
Equity capital (Rs. mn) 41.2 Net worth (Rs. mn) 113.4

Promoters Company business

Vijendra Kumar Mittal & his family
Vijendra Kumar Gupta & his family
Minihyd Hydraulics Pvt. Ltd.
Year of incorporation
1977
Cenlub Industries Limited (CIL) is engaged in the manufacture of centralized lubrication
systems for machinery, plant and equipment and vehicle chassis The Company was
incorporated in 1977 as a proprietorship firm named Cenlub Engineers. The company
has four manufacturing facilities – two in Faridabad, one in Bengaluru and one in Rajkot.
CIL primarily supplies lubrication systems to the machine tools sector and the power
sector, with Bharat Heavy Electricals Ltd. (BHEL) being the major customer.
Peer group analysis

FY12, Cenlub Axtel Permanent

Corporate office Rs in million Industries Industries Magnets
35, DLF Industrial Estate - 1, Total income 361.6 586.3 473.9
Faridabad EBIDTA 51.5 63.1 42.2
Haryana - 121003 EBIDTA margin 14.2% 10.8% 8.9%
PAT 25.5 30.2 (22.6)
PAT margin 7.1% 5.2% (4.8%)
Company website
http://www.cenlub.in EPS 6.2 3.0 (2.6)
Cash accruals 28.3 39.5 (144.0)
Debt/EBIDTA 1.4 1.3 4.8
Debt/Equity 0.6 0.4 1.5
ROANW 22.5% 14.2% neg.
ROACE 26.7% 17.4% neg.
P/E 4.6 2.3 (4.1)
P/BV 1.0 0.5 0.7
Source: Moneycontrol, Company

Write to us at:
equityresearch@outlookindia.com

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 Cenlub Industries Ltd. (CIL)
Price Performance (vs BSE small cap)

300.0% 270.4%
250.0%

200.0%

150.0%

100.0% 78.2%

50.0%

0.0%
-4.1%
-50.0% -30.7%
3 YR 5 YR

BSE Small Cap Cenlub Industries

Top public shareholders

No. Name of the Shareholder Total Shares held (in mns.) Shares as % of Total No. of Shares
1 Kailashben Ashokkumar Patel 0.1 2.3
2 Shyam Sunder Gupta 0.1 1.4
3 Dr Sanjeev Arora 0.1 1.3
Total 0.2 4.9

Change in Shareholding Pattern (%) Shareholding Pattern

Year Promoter DII FII Others

Sep-12 41.3 0.1 0.0 58.7
Jun-12 40.3 0.1 0.0 59.6 Promoter
Mar-12 40.2 0.1 0.0 59.7 41%
DII
Mar-11 39.3 0.1 0.0 60.7
FII
Mar-10 34.5 0.1 0.0 65.4 59%
Mar-09 31.1 0.1 0.0 68.8 Others
Mar-08 28.8 0.1 0.0 71.2
0%
Mar-07 27.5 0.1 0.0 72.4 0%
Source: BSE
Source: BSE
Since 2010 the promoters have been progressively increasing their stake in the company through open market purchases within SEBI
guidelines. From 2007 – 2010 a total of 4.55% of shares of the company were allotted to the promoter VK Mittal on a preferential
basis after approval from the shareholders of the company.

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Established track record of
operations, although scale of
operations is small
Established customer base,
particularly in the machine
tools industry
Strong current order book
provides revenue visibility.
Established customer base,
although customer
concentration risks exist;
working capital intensive
nature of operations.
Low profitability
High competitive intensity in
the industry due to
fragmentation; exposure to
demand risks related to the
project-based nature of the
business.
Favourable long-term demand
prospects from end-user
sectors such as power and
machine tools
Initiative of the BSE Investors’ Protection Fund
Cenlub Industries Ltd. (CIL)
Key strengths
The company has an established track record of operations, being in operations for about three
decades; however, the scale of operations remains small. Most of the orders are low-value orders
from small scale industries; therefore, average realisations remain low, although the company is
taking up more complex orders in the recent past. With improvement in realisations and volumes,
the revenues have witnessed favourable growth.
The company has tried to diversify risks by supplying to various industries such as machine tools
(constituting about 45-50% of the revenues), steel, sponge iron, cement, sugar, power, paper,
textile & jute etc. The company has recently bagged a contract from the Association of State Road
Transport Undertakings (ASRTU) for providing lubrication systems for vehicle chassis for state road
transport undertakings
The company has a current order book (about Rs. 140 million as of February 2012), providing
revenue visibility in the near future.
Key concerns
The company faces high customer concentration risk on account of high exposure to Bharat Heavy
Electricals Limited (BHEL), with ~40% of its revenues of FY12 were orders from BHEL. The balance
customer base is diversified, although the value of orders per customer remains relatively small on
account of high exposure to the machine tools industry. The company has low bargaining power
with bigger customers such as BHEL on account of small scale of operations, while in the case of
SMEs in the machine tools sector; the customers stretch the payments at times leading to high
debtor levels. With the company focussing more on OEMs in the power sector, the customer
concentration risk is expected to reduce and the average value of orders per customer may
improve.
The small scale of operations of the company; high competitive intensity in the centralised
lubrication systems industry on account of fragmentation; exposure to risks related to the project-
based nature of the business, which may impact the order flow and revenues in case of any down-
cycle in the capital goods manufacturing industry; and the low bargaining power with customers
impact the profitability of the company.
Industry overview
The Indian Machine Tools industry is a highly fragmented industry, with an estimated 750-800
companies operating in it. While it witnessed good growth on account of a strong recovery in the
manufacturing sector in 2010-11, the current financial year has witnessed a slowdown in the
manufacturing and capital goods sectors. Most of the domestic lubrication systems manufacturers
are small players with limited scale of operations. The major customers are primarily from the
capital goods industries, such as machinery manufacturers, original equipment manufacturers
(OEMs) particularly from the power industry. The project-based nature of the business results in
the company facing demand risks, with the number of orders declining in case of any slowdown in
the capital goods/manufacturing industry. The customer base of the domestic players includes
smaller players and players for whom after-sales service is a constraining factor; consequently,
imports, with limited after-sales support, do not pose much of a threat to the customer base of
the domestic industry. With domestic lubrication system players moving up the value chain by
engaging in development of more complex systems, the growth prospects of the domestic
industry are favourable.
Government policy
The long-term demand prospects of the machine tool industry are predicted to remain favourable
with growth anticipated in customer sectors such as automobile manufacturing, power generation
etc.
As regards the power sector, the Planning Commission had set a target for installed capacity
addition of 78.7 GW during the 11th plan (2007-2012); however, it is expected that only about 49-
50 GW of power will actually be installed by the end of the 11th plan. Further, the Planning
th
Commission has set an ambitious target of capacity addition of 100 GW for the 12 plan period
(2012-2017); however, given the constraints facing the sector, whether the proposed capacity
addition will be achieved remains to be seen. However, huge capacity additions are likely to aid
growth for the supplier industries, including the lubrication industry.
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 Cenlub Industries Ltd. (CIL)
Company fundamentals
CIL procures components such as motors, pumps, valves, and designs the blue-print of the
lubrication system and assembles the components. It also takes up turn-key projects related to
plant lubrication for various sectors such as machine tools, power systems, steel, iron, sugar, etc.

The growth of the company id directly linked to that of its end-user industries. The ability of the
company to scale up revenues while maintaining profitability and improve the working capital
cycle will be the key to its success over the next few years.

As regards the capex plans of the company, the manufacturing units in Faridabad will be
consolidated in H1 2012-13, for which the building is being constructed. The project cost is
expected to be Rs. 50 million, which is being entirely funded through internal accruals.
Key financial indicators
Total income of the company for FY12 was at Rs 361 mn, 28% higher than FY11. EBIDTA also
increased 36% to Rs 51.5 mn in FY12. EBIDTA margins improved from 13.3% to 14.2% in FY12. The
company has witnessed good growth on account of increased orders from its main customer BHEL.
Despite a 41% increase in interest costs at Rs 12 million, PAT was higher by 43% to Rs 25.5 mn.

The debt of the company has witnessed an increase over the past few years, although debt
primarily constitutes of working capital borrowings..

The working capital requirement is high on account of high debtor and inventory days. Since the
customers of the company include small machine tool manufacturers, the payments get stretched
at times leading to high debtor days. Further, the company has to maintain a stock of components
such as motors, leading to high inventory levels.

Quarterly results

Particulars (Rs in mn) Apr ‘12 to Jun ‘12 Apr ‘11 to Jun ‘11 % Change1 Jan ’12 to Mar ‘12 % Change2
Total income 84.8 82.1 3.3% 107.2 (20.9%)
Total expenditure(excl. depreciation) 72.4 71.0 2.0% 90.1 (19.6%)
EBIDTA 12.4 11.1 11.7% 17.1 (27.5%)
PBT 8.4 8.1 3.7% 14.6 (42.5%)
PAT 5.7 5.4 5.6% 10.9 (47.7%)
EPS 1.4 1.3 5.3% 2.7 (48.1%)
1
compared to corresponding quarter in the previous year
2
sequential comparisons

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 Cenlub Industries Ltd. (CIL)
Ratios

Segment-wise contribution to total revenue Key ratios

EPS and DPS
1%
8.0
1% 6.2
6.0
4.0 4.3 EPS
Lubrication 2.5
Equiipment 2.9 DPS
2.0 2.5
Installation &
0.0 0.0
Erection
FY10 FY11 FY12

99%
BV per share
99%
30.0 27.5
24.5
25.0 23.1
(outer ring shows FY12 data: total operating revenues were Rs. 355.9 mn)
(inner ring shows FY11 data: total operating revenues were Rs. 273.6 mn)
20.0
FY10 FY11 FY12

Profitability ratios Leverage ratios

30.0%
26.7% 1.93
25.0% 22.5% 1.60
20.0% 1.35
20.0% 17.3% 17.7%
0.7
0.6
15.0% 12.6% 0.4

10.0%
FY10 FY11 FY12 FY10 FY11 FY12

RONW ROACE
Debt/Equity Debt/EBIDTA

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 Cenlub Industries Ltd. (CIL)
Financials
P&L (Rs. mn) FY10 FY11 FY12 Balance Sheet (Rs. mn) FY10 FY11 FY12
Total income 184.0 283.6 361.6 Share Capital 41.2 41.2 41.2
EBIDTA 26.1 37.8 51.5 Reserves & Surplus (incl. reval reserves) 53.8 59.6 72.2
EBITDA Margin% 14.2% 13.3% 14.2% Net worth 95.0 100.8 113.4
Depreciation 2.6 2.8 2.8 Borrowings 41.8 72.9 69.5
EBIT 23.5 35.0 48.7 Current liabilities and provisions 36.0 60.1 99.3
Interest 4.5 8.3 11.7 Total liabilities 172.8 233.8 282.2
PBT (post extraordinary items) 18.8 26.6 36.1 Net fixed assets 41.9 43.2 40.1
Tax 6.9 8.6 11.6 loans and advances (Long and short term) 22.3 33.8 52.9
PAT (excl. minority interest) 11.9 17.8 25.5 Investments 14.7 23.8 6.7
PAT Margin % 6.5% 6.3% 7.1% Current assets 85.8 133.2 182.3
Dividend (including divi tax) 0 12 12 Other non-current assets 8.1 (0.2) 0.2
Total assets 172.8 233.8 282.2

Valuation ratios FY10 FY11 FY12 Cash Flow (Rs.mn) FY10 FY11 FY12
P/E 4.83 4.46 4.64 PBT 19.0 26.5 37.1
P/BV 0.61 0.79 1.04 CF from Operations 10.1 (11.2) 44.3
CF from Investments (2.6) (2.9) (19.3)
CF from Financing 8.8 3.5 (21.9)
Inc/(dec) in Cash 16.2 (10.6) 3.0
Closing Balance 30.1 19.5 45.0

Disclaimer

The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate
or complete and it should not be relied on as such. Our company shall not be in any way responsible for any loss or damage that may arise to any
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