Lloyd Electric and Engineering

Investors with short-term perspective can buy the stock of Lloyd Electric and Engineering. It is seen from the charts of the stock that it has been on an intermediate-term uptrend since its March 2009 low of Rs 13.6, forming higher peaks and higher troughs. However, after encountering resistance around Rs 85 in April 2010, the stock started to move sideways shaping symmetric triangle pattern. Generally this pattern is a continuation pattern, which is bullish in this scenario. On July 14, the stock broke out of this pattern by jumping 6.5 per cent. The volume accompanying this move was extra-ordinary. The stock is trading way above its 21 and 50-day moving averages. Both daily and weekly relative strength indices are featuring in the bullish zone. The daily moving average convergence divergence indicator has signalled a buy. Medium as well as short-term trend is also up for the stock. Our short-term forecast on the stock is bullish. We anticipate the stock to rally further until it hits our price target of Rs 91 or Rs 94 in the upcoming trading sessions. Traders with short-term perspective can buy the stock while maintaining stop-loss at Rs 83.

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Lloyd Electric & Engineering

Sustained growth in the production of white goods, as suggested by the consumer durables index (in the IIP) indicates that air-conditioners (ACs) are back in demand, after a slump last year. This provides a good case for investing in the stock of Lloyd Electric and Engineering, a manufacturer of AC coils and fully-built AC units, mostly on a contract basis. Jump in the company’s sales and operating profit margin in the September quarter also suggesta recovery, after a lacklustre FY-09. Lloyd Electric’s clients include leading brands such as Samsung, Voltas and Electrolux.

Investors can consider the stock of Lloyd Electric with a one-two-year perspective. At Rs 56, the stock trades at eight times its trailing one-year earnings.

While the discount to larger players such as Voltas and Blue Star may be justified given Lloyd Electric’s smaller size, the company’s earnings growth is likely to outpace the valuations currently awarded.
The company

The company’s sales grew at a compounded annual rate of 24 per cent over the last five years to Rs 585 crore in FY-09. Lloyd Electric’s heat exchanger coils now go into all major branded ACs such as Voltas, Blue Star, LG Electronics and Samsung.

This apart, the company is also into making of AC units for rail coaches and the normal window and split-type AC units for the retail market.

Last year, the company set foot in the European coil market with the acquisition of Luvata Czech. Luvata Czech sells heat exchangers for AC and refrigeration units. This acquisition has not only helped mere geographic diversification but also provided access to high-end technologies in coil manufacture.
Sales drivers

After a blip in FY-09 (with sales down 12 per cent), the company has seen a significant recovery in sales in the last two quarters, coinciding with the revival in the consumer durables index — a constituent of the Index for Industrial Production (IIP). The pick-up in demand for air-conditioners from the household segment has worked well for Lloyd Electric.

Though the company’s direct share in the retail market isn’t high, its sales have been growing as a result of coil demand from branded AC players. After a 6 per cent decline in the March quarter and a flat growth in the June quarter, the company’s sales grew 30 per cent in the September quarter.

The company’s European operation is also expected to gather steam once slowdown worries subside and corporate spending resumes. This would provide further traction to sales growth.

In the domestic market, the lull in demand in the office space — a key driver for the company’s revenues, appears to be making a slow revival especially in the metros. Industry reports suggest that the demand for office space is likely to be higher by 53 per cent in 2011 compared with 2009.

Lloyd Electric has benefitted from the increased government spending. The company has large metro rail orders from the Government. More metro projects/addition of metro rail coaches can be expected to translate into higher orders for Lloyd Electric, given its prior qualification in this segment.
Profit derives support

Lloyd Electric has been making efforts to reduce costs.But the unprecedented rise in commodity prices swallowed the savings made in FY09. Besides, lower demand for its product may also have forced the company to lower prices. Lloyd Electric’s operating margins fell 3 percentage points to 9 per cent in FY-09.

The company’s contract business, however, appears less vulnerable to cost increases as majority of contracts have been booked on a cost-plus margin basis. Lloyd Electric’s business of manufacturing AC units for OEMs also support overall profit margins, given its backward integration of using coils produced in-house.

FY-09 was a bad year for the company with profits eroding by close to 60 per cent to Rs 20 crore on fall in sales and rise in commodity prices. However, between 2004 and 2008 profits after tax grew 70 per cent annually.

LLoyd Electric and Engineering

We recommend a buy in Lloyd Electric and Engineering from a short-term trading perspective. The stock has been on an intermediate term up-trend since the low of Rs 13.6 recorded on March 6. Though this trend is halting since the last week of May and a consolidation is in progress, we notice that the decline halted above Rs 37 that is 38.2 per cent retracement of the up-move since the March trough. Further the hammer pattern formed on Tuesday also indicates buying support around Rs 37. Though the 14-day relative strength index is moving lower, it is still in bullish zone at 59. Investors with a short-term horizon can buy the stock with a stop at 40.5. The stock can move up to Rs 46.6 in the near future.

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Today's Pick - LLyod Electric and Engineering

We recommend a buy in Lloyd Electric & Engineering from a short-term perspective. The charts of the stock show that it has been on a medium-term uptrend from its 52-week low of Rs 89.25 (touched in late March 2008). While trending up, the stock crossed the 21- and 50-day moving averages in succession and it has been forming higher peaks and higher troughs.

We notice that there is an increase in volumes traded over the past three trading sessions. In the recent times, the daily momentum indicator has also entered the bullish zone and it is currently featuring in this zone.

Moreover, the daily moving average convergence and divergence is featuring in the positive territory, indicating bullishness. Our short-term outlook for the stock is bullish. We expect the stock’s medium-term uptrend to continue until it hits our price target of Rs 142. Investor with short-term perspective can buy the stock while keeping the stop-loss at Rs 118 level.

LLoyd Electric and Engineering

LLoyd Electric and Engineering

LLoyd Electric and Engineering

LLoyd Electric and Engineering

Lloyd Electric & Engineering: Buy

Investors with a 2-3 year perspective can add Lloyd Electric & Engineering to their portfolio, as the stock could emerge as a proxy for increasing consumerism in the country. Niche positioning as original equipment manufacturer of coils for a number of air-conditioner manufacturers, operational efficiencies derived from a fully integrated business and strong financials are positives for the company. At the current market price the stock trades at 10 times its expected earnings for FY08.

Lloyd Electric’s operations are forward integrated, ranging from making heat exchanger coils for air-conditioners to manufacturing window/split air-conditioners.

The company’s stock may not deserve the valuation commanded by branded players such as Blue Star or Voltas, but the current valuation discount suffered by Lloyd appears to be too steep, given its forward integration. As one of the leading coil manufacturers in India, Lloyd is an OEM supplier for leading AC makers including Blue Star, Voltas and LG. With possible spikes in demand for air-conditioners in the peak season (January-June), AC makers prefer to outsource excess demand for coil.

Lloyd is equipped with high quality imported machinery and has very few organised competitors; it may, therefore, continue to derive business from branded players. Further, the entry of new players, which is reducing margins for AC marketers, is actually a positive for Lloyd as it translates into new business.

Lloyd Electric has also started receiving outsourced orders for making window and split air-conditioners for some of the branded players. To cater to this demand, the company has expanded the capacity of its Himachal Pradesh unit and set up a new AC manufacturing plant in Uttaranchal.

That the company is also a supplier of AC package units (through a tie-up with an Australian company) for Delhi Metro Rail Corporation reflects its product strengths. We also view the company’s tie-up with a Korean company for making coil for frost-free refrigerators as a product diversification move.

The company’s sales grew at 36 per cent annually over the past three years and stood at Rs 496 crore in FY07. Operational efficiencies from its backward and forward integration projects ensured a 65 per cent annualised growth in operating profits over the same period. In terms of risks, a rise in raw material cost, especially copper, can dent operating margins. Tax benefits in all its three plants would, however, lend a boost to the net profits over the next few years.