Friday, 7 April 2017

Linde India Ltd: Solid Gas!!!


 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.

Prozone Intu: Entered at 36…one of its own type of residential cum commercial developer with focus on getting long term lease rentals. Own fully paid land bank of 1200 cr with market cap of just 600 cr. CMP 45. Still a Good buy.

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)











2 comments:

  1. From: Gurpreet Singh
    Date: 26 April 2017 at 10:05
    Subject: KPIT Tech
    To: Gurpreet Singh


    Dear All,

    KPIT technologies: This is not like our conventional IT company....just like Tata Elxsi it is predominately a system design and product engineering company with main focus on Auto sector. It has even developed its own products like Hybrid vehicle kit Revolo. It has very strong research capabilities with around 50 patents. Off late, it is focusing big time on electric vehicle, IOT, Intelligence transport system, Cybersecurity etc. New Delhi parliament is using the electric bus from KPIT. Its Hybrid electric vehicle kit Revolo is a revolutionary product which is getting high accolades across the globe. Any positive news on commercialization will be a big big positive as indian Govt is also having grand plans for electric mobility.

    Actually i have always felt that as India has surplus power now so using the same for powering vehicles is much better and cheaper option than importing the Oil. Only need is to have public charging points as charging at home may prove costly due to slabs of units.

    KPIT is trading lower due to slower growth in recent past and high debtor days which it is improving fast. Higher salary cost was the reason for margin drop. But it is cheap at 10 PE and 2% dividend yield. But it has great visionary management, strong execution and R&D skills. I have entered at 130 last day...earlier avg is 140. But it is a bit risky...so invest only risky capital.

    A small study is also at our Blog.

    Regards

    Gurpreet Singh.

    ReplyDelete
  2. Dear Sir,

    Have you checked KPIT results. Nit much promising and consistently lagging behind. Your views please.

    ReplyDelete