Linde India: It is a global Industrial, food freezing and healthcare Gas giant. It is already the biggest
player in Air Separation units (ASU) for steel and oil & gas industry in
India. Air separation plants are used in the process of separating atmospheric
air from its basic components, which are primarily nitrogen and oxygen, along
with argon and other rare gases. But ASU’s requires high technological
expertise along with high initial investments. Linde India is getting its
majority of revenues from ‘Onsite” business where it creates the Gas supply
facilities at the place of customer and enters into long term gas supply
agreements with the customer. It is a long term partner of Tata steel from the
days of first steel unit at Jamshedpur. Other business vertical is packaged Gas
business where it sells Gas products in packages. Healthcare Gas business is
its fastest growing business vertical.
Benefits
of recent big investments yet to come
Off late it
has created 2 ASU at Tata steel’s new steel plant at Kalinganagar, Odisha. It
is also commissioning the ASU units for Bosch and JSW steel. In last 2-3 years,
Linde has invested around 2500 cr in India the benefit of which is yet to come.
High depreciation and Interest charge is eating the NP but its top line is
growing fast and will see further high
growth as both the ASU at Tata steel will run full stream. Its depreciation has been increased from 120 cr to 200 cr
and interest charge from 40 cr to 120 cr in last 5 years. It has long
term Gas supply contract with Tata steel which will provide the stability to
future revenues. Its assets base is 3100 cr but its Market cap is just 3600 cr
which shows the current under usage of assets but the same will see high growth
from hereon. Its turnover is 1800-1900 cr.
Healthcare,
Food freezing and Renewable energy gases: Future high growth areas
It is also
a big player in Medical gases in India the use of which is growing fast in
India. Its healthcare gas business is generating revenues of 150 cr. I think
its Medical gas business will be a big surprise factor as the technological
edge of Linde will ensure ample growth opportunities. India is witnessing fast
creation of healthcare facilities. India is an emerging force for medical
tourism and I have shared earlier also that Indian healthcare industry (mainly Medical
tourism) is a much bigger opportunity than IT sector and I am sure the future
multibaggers will emerge from this sector. I have already advised investing
into Narayana Hrudayalaya and Healthcare Global enterprise. These two will revolutionize
the world of healthcare with their low cost but high quality healthcare
services.
From its
Tata steel ASU plants apart from selling gases to Tata it’ll also make merchant
sale of other gases/Liquid gases. For this it is laying the pipeline to cover
maximum customers.
Linde is a
global force in Food freezing cryogenic technology. Linde is investing 500 cr
in AP (The home of Indian sea food export, Avanti feeds is also based in AP)
for creating the cryogenic food freezing facilities. Due to its extremely cold
temperature, liquid nitrogen is used to freeze food within minutes, instead of
the hours traditionally required with other systems. The faster freezing causes
the formation of small ice crystals, which then help ensure product moisture
and quality are maintained longer. Cryogenic freezing offers distinct quality
benefits, including a taste and texture more resembling fresh seafood. This is
a vast emerging opportunity for Linde India.
Linde is
also a major supplier of electronic gases for Solar PV manufacturing and maintenance
of gas facilities at solar power plants. I don’t think we need any data to
prove the high growth potential of Solar PV power plants in India. But the
ideal game changer will be the manufacturing of Solar PV cell in India. Already
a few companies has shown the interest in creating the manufacturing facilities
for Solar PV cell.
But Steel
sector is seeing recovery in India…more so after duty imposition on cheap
Chinese imports. There is also a proposal for allowing the use of steel only
made in India for Infrastructure prjects. I am seeing Linde India growing big
from hereon.
Surprise
Factor: Hydrogen Fuel cell
Although not related to India, but Linde is a
preferred supplier of Hydrogen for fuel cell vehicles across the developed
world. The company has equipped around 90 refuelling stations in fifteen
countries. Hydrogen-powered vehicles have long ranges and short refuelling
times (quite the opposite of current EV technology)– benefits that are spurring
the expansion of this technology by Governments across the globe. A fuel cell
just releases water as a pollutant!! Linde is doing big research for producing
hydrogen from renewable resources; like from electrolysis of water.
Hydrogen is
the simplest element wherein an atom of hydrogen consists of only one proton
and one electron. It's also the most plentiful element in the universe. Despite
its simplicity and abundance, hydrogen doesn't occur naturally as a gas on the
Earth - it's always combined with other elements. Water, for example, is a
combination of hydrogen and oxygen (H2O). Hydrogen is high in energy yet it
generates no pollution. NASA is using liquid Hydrogen powered engines for its
space programs since 1970 wherein fuel cell powers the space shuttle and
produces water as a by-product which is used by the crew for drinking!!!
At present Hydrogen
is mostly produced from Hydrocarbons like Oil, natural gas, methanol, and
propane. Hydrogen can be separated from hydrocarbons through the application of
heat - a process known as reforming. Currently, most hydrogen is made this way
from natural gas. But this also results in air pollution although not at the
point of use of Hydrogen in vehicles but over the entire lifecycle from Gas
recovery to Hydrogen production. Then another zero pollution option is to
separate Hydrogen from water using electricity which is somewhat expensive
right now. But extensive research is already going around the globe with
encouraging results. But who knows we can see the Hydrogen powered vehicles overtaking
battery powered electric vehicles.
I am not a scientist but I think of an ideal
situation where we can use off grid excess solar/wind power to produce Hydrogen
from water and then transporting it via pipelines…just guessing. Right now due
to costly battery technology excess power produced by solar and wind turbine is
wasted. But I think it is better to use this for producing Hydrogen. Actually
the equation is simple: production of Hydrogen by Reforming of Methane (Natural
Gas) also requires power to heat and in the same way power is required for
separating Hydrogen from water. So at places where we don’t have any natural
gas supply (even if we can supply) the excess energy of Solar/wind power plants
can be used for water electrolysis. But it is just my view.
Although at
present there are no such Hydrogen powered vehicles in India. Setting of
Hydrogen filling pumps are also a big challenge. But invention of a new
revolutionary technology transforms and creates necessary supportive infrastructure
at unimaginable speed. We are witnessing one such thing in 3G/4G and broadband
in India. But still all this shows the inherent technological strengths of
Linde India; enough to maintain the technical edge. Great buy at CMP of 430. I
have entered in it at 400 2-3 days back and almost done with the buying.
Also a
number of stocks are under study and I have bought all of them. But I couldn’t
post the analysis of them due to extremely tight schedule due to annual account
closing activities. However some details of these stocks have already been
shared with the email subscriber group. I’ll post detailed study on these
whenever I am free. So I am just mentioning these and my entry prices. Market may see a correction in April so keep an eye on these:
Aditya
Birla fashion and Retail: Entry price at 144 and multiple
buying after that around 150. Owner of the biggest Indian fashion brands Ven Heusen, Allen Solly, Louis Philippe, Peter England. It will huge growth in the future. Undervalued at CMP 160. Great Buy.
Mahindra
Life space: Entered at
350. One of its kind Integrated industrial cum residential developer. It developed
1500 acres of industrial cum residential park in Chennai which is a great role
model for smart cities in India. Also it announced the right issue at 292 which
will further lower the average price. CMP is 410 after hitting 450. Good Buy
for long term.
Bajaj
Corporation: Entered at
370. CMP is 407. It is predominately a one product FMCG company with strong
brand; Bajaj Almond drops hair oil apart from other hair oil brands. It
acquired Nomarks 2-3 years back which deals in Ayurvedic skin care products.
Bajaj corp gives around Rs. 12 dividends with EPS of around 15-16!
It has net
worth of around 480 cr and its NP is around 220 cr (Net of Exceptional
items)...so a great ROE of around 50% but this is not the complete story. It
has around 270 cr as investments in Bonds/MF so if we leave this out from net
worth then it is earning NP of 200 cr on net Net worth of 210cr (480-270)...an
ROE of 100%!!!
But Bajaj
hasn't grown much in last 2-3 years due to general slowdown especially rural.
Growth may be strong with good monsoon and general trend in shifting to Light
hair oils. Bajaj is focusing on growing Nomarks. But my main reason for
investing is its investment portfolio of 270 (May be valued around 330-350 cr
after recent run up in Bonds).I feel Bajaj will use this to make some
acquisitions for inorganic growth. It looks fairly priced now. But i love these
Bajaj people for wealth creation and superior Brand building capabilities than
the likes of Tata. So this one looks risky due to low recent growth and 25 PE
but safer due to Bajaj, dividend and strong brand power.
(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post)