Cenlub Industries

Its been sometime since I posted something on the blog. Recently I came across this company called Cenlub industries.I will give some of the quick financials about the company over the period FY06-10

1. The company's revenue has grown by 17% CAGR over the time period, PAT at a CAGR of 14.59%, EBITDA at a CAGR of 18.92%. 
2. The margins were 12% in FY06 and now stand at 14% in FY10.
3. The PAT margins have remained almost flat at 7% over the period. 
4. The RoE of the company has also remained stable at 13-14% with the decrease in asset turnover being compensated by the leverage. 
5. The D/E ratio of the company stands at 44%. The leverage has increased from 1.1 to 1.4.
6. The company has reduced its working capital cycle from 2.6months to 1.9 months
7. Now a thing that strikes when we see the working capital cycle going down, PAT increasing, leverage increasing is why has the return on equity remained stable. The only reason being that the equity is not being deployed in business or part of the equity deployed, is not in productive resources as the business itself. A closer look at the balance sheet reveals the same. The % of assets in cash and bank balance, investments and loans and advances has increased from 25% in FY06 to 49% in FY10. 
8. The book value has grown from 1.31 in FY06 to 5.38 in FY10, registering a CAGR of 42% while the total assets has grown by 22% over the same period.The per share book value has increased from 13.18 in FY06 to 23.05 in FY10.
9. Over the past one year i.e over June 2009 to June 2010, the promoters have increased their shareholding from 31.09% to 35.45% and the promoters have purchased the shares at a price range of Rs. 19-21.

Valuation Parameters

1. The EV/EBITDA for the company stands at 4.72 at the market price of Rs. 27/share. 
2. The cash on books per share is Rs. 7.3 and including some listed and unlisted investments the value per share of cash and investments comes to Rs. 10.78/share.
3. The TTM P/E of the company stands at 9.55

Ok financial data is fine!! what does the company do? Its all in the name, Cenlub - central lubrication systems i.e exactly what the company does. As the plants and machines become more sophisticated and automatic to attain wider performance and better efficiency, it becomes absolutely necessary to go  for central lubrication system. These lubrication systems are supplied to power plants, steel plants and refineries. The company has also bagged good amount of order from public sector like BHEL and other private sector making turbines.

On the day I am writing this there is one more announcement, the promoters have bought another 4000 shares. As Mr. Lynch says.. promoters buying is always a good sign but promoter selling is not always a bad sign. The reason i got excited was not only because of the promoter interest, very good valuations but the fact that this company operates in the capital good space supplying its products to the power sector and has tremendous opportunity to grow given the massive power generation capacities that India plans to add over the next years.

Disclaimer: I have investment in the company.