Saturday, November 29, 2014

Stewarts & Lloyds of India Ltd (Recomended at 30)

Stock made high of 54 after recomendation


This company is Promoted by IOT Infrastructure & Energy Services Ltd (100% Subsidiary of Indian Oil Corporation Ltd) which holds 55.46% stake in it. The company has small equity base of Rs 3 crore, with very low floating stock. The company which is promoted by PSU Subsidiary Company, Listed on BSE, belongs to turnaround sector, i.e. EPC & Project Maintenance is trading at a Ridiculously cheap, with market cap of only 9 crore.

Main business of the company is to execute EPC, Maintenance, Engineering Services and Project Management orders received from Indian Oil Corporation (IOC) and all its Subsidiaries through its promoter company IOT Infra & Energy Services Ltd (IOCIESL).

Everything was going good with this company till boom period of 2007-8 and before that. After that downhill ride for the company started.

Main reason was Shortage of Orders, Non availability of Bank Finance,  Non realization of old outstanding dues, Encashment of Bank Guarantees, the company has to suffer a lot, as IOCL, from which it used to receive orders was bleeding under subsidy burden, which made difficult for the company to allot cash and undertake for new project and pass on the contract to Stewarts & Lloyds through IOTIESL.

The performance of the company has now hit the bottom and could not go down further.

In the past few months the UPA and new NDA government has allowed to raise Diesel price by 50 Paise gradually, the step which seems to be turning around the corners for the oil companies including IOCL, now that the subsidy on Diesel is just under 1 rupee per litre, as compared to Rs 15 couple of years back.

Now that OIL COMPANIES will again start making profits, which will fill their chest with cash and help them to execute new projects, which will benefit companies like Stewarts & Lloyds.

Even Stewarts & Lloyds have proposed some steps to turn the company around , some of the Strategies adopted by the company is as below :-

Regaining Customer’s Confidence

Initiatives to tie-up with various Public / Private sectors

Strengthening the working capacity with active business development drive

Synergies with group companies to create value

Upgradation of safety and quality standard in order to meet up international standard

Restructuring its marketing group to focus on company’s business for project related and maintenance job

Top build self-sustaining base for manufacturing and fabrication unit

Measures taken for cost reduction and cost control in all the activities

In a recently concluded AGM the Chairman mentioned that

“The company is putting its best efforts to come out of this impasse with the support of its parent company and associate companies.

The parent company has come forward with active involvement to resolve the stalement condition in the banks.

The company is also having talks with its associate companies for bagging some part of the Service / Erection orders from them where involvement of Letter of Credit and Bank Guarantee is NIL.

The company is also concentrating on procurement of maintenance orders from DSP, TATA STEEL and PARADIP where requirement of supplyis very nominal.

The company is aiming for optimum utilization of its available resources and hopes that with the visionary outlook and effective planning of the NEW GOVERNMENT there will be BOOST up in the Infrastructure and Engineering sectors and the company will be able to take the opportunity to grab some of the business from the market and gradually come out from such difficult situation.”

Conclusion : Looking at all the above reasons, Investors can take small exposure in the company as high risk high gain bet with medium term view of 12 months with target price of Rs 50. Which seems achievable if company turns around and start making profits again.

No comments:

Post a Comment