HLE Glascoat LtdQ3 FY20Industrial Manufacturing

HLE Glascoat Ltd

Q3 FY20 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 3

Fundraise

Yes

Order

Yes

Capex

Yes

3 of 5 growth signals are positive.

Revenue guidance

Category 3

→The company expects robust growth in both Glass Lined Equipment (GLE) and Filtration & Drying (ANFD) segments, driven by expanding domestic chemical, pharma, agrochemical, dyes, and pigment industries.
→Order books are strong with 6-7 months of revenue visibility in both segments.
→There is significant untapped potential in small and medium-sized companies adopting sophisticated equipment, especially in the filtration and drying business.
→Exports currently contribute less than 5% but present a large growth opportunity.
→Continuous new product development and after-sales service expansion are key growth drivers.
→Capex of around Rs. 50 Crores planned across three plants to support capacity growth.
→Expected capex to revenue conversion ranges between 2.5 to 4 times.
→Management optimistic about sustained or improving margins and returns driven by efficiency, cost optimization, and operating leverage.
→Growth to be supported by domestic market expansion rather than primarily exports over the next 5 years.

Category 3

→Management is optimistic about future returns on capital employed and return on equity, expecting continued growth based on past consistent improvements.
→Growth drivers include business expansion, improved profitability, stronger balance sheet, lower borrowing costs, efficient infrastructure, better procurement through scale, and operating leverage.
→The company is in a high growth phase with plans to balance risk and reward, including ongoing product development and market expansion.
→Opportunities lie in after-sales services, penetration into small and medium enterprises, and increasing exports (currently less than 5% of revenue).
→Order books remain robust with 6-7 months visibility and strong demand across sectors like API Pharma, Specialty Chemicals, and Agrochemicals.
→Continuous cost optimization and capacity utilization improvements have led to margin enhancements, likely sustainable near current levels.
→Capex of around Rs. 50 Crores across manufacturing hubs is expected to support revenue growth, with capex-to-revenue generation ratio between 2.5x to 4x.
→Overall earnings/profit growth is expected to be healthy aligned with industry tailwinds and company initiatives.

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Yes

→The company raised Rs. 100 Crores through preferential allotment of ordinary shares and warrants to Malabar India Fund Limited and Malabar Value Fund Scheme, both foreign portfolio investors.
→This equity infusion is aimed at capacity building, operational efficiencies, and maintaining a strong financial cushion.
→Rs. 35 Crores is planned for investment related to H L Equipment (including acquisition of 19% stake and capex at Silvassa plant).
→No new debt is planned; currently, aggregate debt is about Rs. 70-75 Crores.
→Excess cash flows will be utilized to reduce interest cost, and the company is not keeping money idle at any point.
→The company is focused on a de-risked financial structure with no plans to flood excess liquidity, implying controlled and need-based capital raising.

Yes

→The current order book is in excess of Rs. 225 Crores (Page 9).
→The order book for both Filtration Drying and Glass Lined Equipment segments is roughly even and covers approximately 6 to 7 months of revenue (Page 16).
→The company has a robust order book despite the COVID-19 impact, with deliveries scheduled stretching 6 to 7 months ahead for both segments (Page 6).
→There is strong visibility for the order book, supported by enquiries and sustained demand across API Pharma, Specialty Chemicals, Agrochemicals, Dyes, and Pigments sectors (Pages 6 and 9).

Yes

→Aggregate capex of approximately Rs. 50 Crores approved across three manufacturing hubs:
→ - Expansion project at Anand (Glass Lined Equipment Business)
→ - Construction of additional Manufacturing Bay at Maroli (Filtration and Drying Equipment Business)
→ - New manufacturing facility and infrastructure at Silvassa for Filtration and Drying Equipment (approx. Rs. 20 Crores)
→Plan to grow the Silvassa hub by acquiring up to 99% stake in H L Equipment (partnership with 80% held previously)
→Capex expected to lead to efficient operations with a revenue generation potential of 2.5 to 4 times the capex
→Fresh investment of up to Rs. 35 Crores in H L Equipment (includes Rs. 20 Crores for Silvassa plant capex and Rs. 25-30 Crores for acquisition of 19% stake)
→Capital raised Rs. 100 Crores via preferential allotment for growth and financial de-risking
→Capex and investments are phased and need-based to maintain efficiency and avoid idle funds

How does HLE Glascoat Ltd rank vs peers in Industrial Manufacturing?

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1HLE Glascoat Ltd

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