Considering Nitin Fire Protection’s high growth and earnings visibility, investors with an 18-24 month horizon can put money in the stock
NITIN FIRE Protection (NFPCL) offers turnkey fire protection services to commercial and industrial clients with expected annual consolidated turnover of Rs 130 crore in FY08. It has set up a unit to manufacture high-pressure cylinders in Vizag SEZ. It has bagged orders worth Rs 170 crore for this plant, to be executed over 15 months, while growth from its core business continues unabated. Considering NFPCL’s high earnings visibility, investors with an 18-24 month horizon can invest in it.
BUSINESS:
NFPCL operates via six subsidiaries and offers products & services in fire security, electronic security and intelligent building management systems segments. It also trades in high-pressure seamless cylinders, which it sources from China. It recently set up an arm in Jabel Ali Free Trade Zone, Dubai, to offer fire protection services. NFPCL has set up a 500,000 units p.a. facility to manufacture high-pressure cylinders used for CNG. Located in an SEZ, this facility will cater to export demand. With this, NFPCL will become the second-largest producer of high-pressure seamless cylinders in India. The company holds 10% stake in an oil exploration block in Rajasthan, adjacent to Cairn’s discovered oil fields. Its exploration activities will begin soon and continue for 2-3 years. NFPCL may invest Rs 12 crore over the next three years in this activity.
GROWTH DRIVERS:
Its CNG cylinders plant will be commissioned in this quarter. The unexecuted order book for this plant is over 120% of NFPCL’s annual turnover. The demand for CNG cylinders is set to remain strong in future. Meanwhile, NFPCL’s fire protection business is set to grow 20-25% y-o-y for the next two years.
FINANCIALS:
For Q3 FY08, NFPCL saw 165% jump in net profit to Rs 15.3 crore, and 48% rise in net sales to Rs 101.5 crore. For FY07, it had net profit of Rs 10 crore on sales of Rs 100.5 crore. It has been able to maintain OPM at 18%. High-pressure cylinders may generate OPM in excess of 20%.
VALUATIONS:
NFPCL is set to close FY08 with net profit of Rs 21.3 crore, which may rise to Rs 40.6 crore in FY09. The CMP of Rs 459.75 is 27.3 times and 14.3 times the expected earnings for FY08 and FY09, respectively. Considering its high growth and earning visibility, the valuations seem attractive for investors. NFPCL does not have any direct peer. Everest Kanto Cylinders — India’s largest producer of high-pressure seamless cylinders — is trading at a P/E of 29.6, while electronic security provider Zicom trades at a P/E of 19.4.
RISKS:
NFPCL has no experience in manufacturing high-pressure cylinders. Commissioning of this unit was planned in October ’07, but was delayed.
NITIN FIRE Protection (NFPCL) offers turnkey fire protection services to commercial and industrial clients with expected annual consolidated turnover of Rs 130 crore in FY08. It has set up a unit to manufacture high-pressure cylinders in Vizag SEZ. It has bagged orders worth Rs 170 crore for this plant, to be executed over 15 months, while growth from its core business continues unabated. Considering NFPCL’s high earnings visibility, investors with an 18-24 month horizon can invest in it.
BUSINESS:
NFPCL operates via six subsidiaries and offers products & services in fire security, electronic security and intelligent building management systems segments. It also trades in high-pressure seamless cylinders, which it sources from China. It recently set up an arm in Jabel Ali Free Trade Zone, Dubai, to offer fire protection services. NFPCL has set up a 500,000 units p.a. facility to manufacture high-pressure cylinders used for CNG. Located in an SEZ, this facility will cater to export demand. With this, NFPCL will become the second-largest producer of high-pressure seamless cylinders in India. The company holds 10% stake in an oil exploration block in Rajasthan, adjacent to Cairn’s discovered oil fields. Its exploration activities will begin soon and continue for 2-3 years. NFPCL may invest Rs 12 crore over the next three years in this activity.
GROWTH DRIVERS:
Its CNG cylinders plant will be commissioned in this quarter. The unexecuted order book for this plant is over 120% of NFPCL’s annual turnover. The demand for CNG cylinders is set to remain strong in future. Meanwhile, NFPCL’s fire protection business is set to grow 20-25% y-o-y for the next two years.
FINANCIALS:
For Q3 FY08, NFPCL saw 165% jump in net profit to Rs 15.3 crore, and 48% rise in net sales to Rs 101.5 crore. For FY07, it had net profit of Rs 10 crore on sales of Rs 100.5 crore. It has been able to maintain OPM at 18%. High-pressure cylinders may generate OPM in excess of 20%.
VALUATIONS:
NFPCL is set to close FY08 with net profit of Rs 21.3 crore, which may rise to Rs 40.6 crore in FY09. The CMP of Rs 459.75 is 27.3 times and 14.3 times the expected earnings for FY08 and FY09, respectively. Considering its high growth and earning visibility, the valuations seem attractive for investors. NFPCL does not have any direct peer. Everest Kanto Cylinders — India’s largest producer of high-pressure seamless cylinders — is trading at a P/E of 29.6, while electronic security provider Zicom trades at a P/E of 19.4.
RISKS:
NFPCL has no experience in manufacturing high-pressure cylinders. Commissioning of this unit was planned in October ’07, but was delayed.
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