Nitin Fire: cylinder unit holds the key to future

NOTWITHSTANDING the 10% fall in the last four trading sessions, Nitin Fire Protection (NFP) has substantially outperformed the markets over the last one year. The scrip has nearly tripled during the past 12 months against a 105% appreciation in the benchmark Sensex during the period.
The company which had launched its IPO in May 2007 to raise Rs 65 crore was commanding a price above Rs 600 per share at its peak in January 2008. But the stock fell below Rs 120 in March 2009 when the market tanked. However, the recovery since then has been sustained.
Earlier in FY10, NFP’s two main segments — fire protection and CNG cylinders — had hit the slow lane as demand weakened owing to the economic downturn.
As a result, the company posted numbers that hinted at stagnation in the first half of FY10. However, with a strong demand recovery in its user industry, the company posted a 72% jump in its December 2009 quarter profits.
NFP also holds a stake of 11.1% in a 4,613-sq km petroleum exploration block in Rajasthan, where exploratory drilling is underway. By September 2010, the results of exploratory drilling will be known.
The main problem for the company today is the ramping up of its CNG cylinder manufacturing unit in Vizag SEZ. NFP had set up the 5-lakh units per annum in 2008, but is able to operate it only at 25% capacity, which is expected to go up only to 30% in FY11.
The use of natural gas is increasing across the globe recently surpassing 24% of all energy consumed. The automobile industry is also fast adopting this fuel, particularly in Pakistan and Iran.
Although this paints a rosy picture for the demand for NFP’s products, it does not reflect in actual sales. The company has tied up with Tata Motors and Swaraj Mazda — two leading producers of commercial vehicles — for supplying CNG cylinders.
In the integrated building management business, which includes the fire protection business, NFP holds around Rs 80 crore of outstanding order book. It already has a number of large corporate clients in this business.
Recently, it won a single contract of $3.5 million for installing firefighting and safety equipment for utility tunnel project outside India. It recently announced its intention to go for an acquisition particularly in Europe and in the fire protection business.
Other than inorganic growth plans, it’s not contemplating any major capex next year. However, there is little clarity at this point in time on the company’s inorganic growth plans.
At the current market price, the scrip is trading at a price-to-earnings multiple (PE) of 13.3. The March 2010 quarter results are expected to be better against the year ago period. NFP’s growth will depend on the ramping up of the cylinder unit.