Consider Small Caps in Aluminium Extrusion: Century Extrusions, Sudal Ind | CORPORATE ETHOS

Consider Small Caps in Aluminium Extrusion: Century Extrusions, Sudal Ind

By: | May 3, 2018
Aluminium Extrusion

The demand and consumption of aluminium extrusion products is growing at a rapid pace in India and the industry is looking forward to favourable policies for the growth of this sector. The consumption of extrusion products was close to one million tonnes last year and is expected to cross 3 million tons in 5 years.

Aluminium extrusion is a technique used to transform aluminium alloy into objects with a definitive cross-sectional profile for a wide range of uses from home appliances to automobiles. The products come in solid, semi-hollow and hollow shapes. Direct and indirect extrusion techniques are used to make extrusion products.

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The industry has sought government support for increased production of high-grade extrusion products. There should be anti-dumping duties on imports for next five years or all price preference to locally produced high grade extruded aluminium parts and components for next five years.

Amidst the high growth potential of aluminium extrusions market, here is a look at the prospects of major players in this domain:
#Century Extrusions Ltd (BSE:500083, NSE: CENTEXT) Category: Small Cap
Century Extrusions Ltd was established in 1991 by Shri M P Jhunjhunwala, a first- generation entrepreneur. The company is one of India’s large pure play aluminium extrusion manufacturer with production facility at Kharagpur in West Bengal. It has in house facilities for die manufacturing, casting of billets and extrusion manufacturing facility with three press lines. It has the most advanced equipments sourced from Japan and India.

The products are used for varied applications such as architectural, hardware, road transport-vehicles, railways, electrical and electronic applications, engineering applications, automotive sector, consumer durables.

In 2016-17, the company reported a sales turnover of Rs 203.52  cr as against Rs 188.07 cr the previous year representing a growth of 8.21%. Net profit was Rs 1.22 cr showing a growth of 34% over the previous year.

In Q3FY18, the company reported 234% growth in net profit at Rs 0.97 cr while sales rose 36.41% to Rs 60.26 cr. Return on equity of 3.08%, on assets of 1.20%, net profit margin of 0.67% looks attractive while liquidity and cash flow presents a mixed picture.

On a half yearly basis returns are good at 25.74%. It is trading at a PE of 17.16 suggestive of moderate valuation by market.

On technical charts, RSI of 62.35 indicates bullishness while ADX of 20 indicates range bound trading and MACD has witnessed a bullish cross over signalling an uptrend soon.

Target: 8   Duration :  2 weeks.

#Sudal Industries Ltd  (BSE: 506003) Category: Small Cap
Sudal Industries was established in 1979 with the objective to manufacture certified sophisticated aluminium extrusions for a wide range of industrial uses and had an installed capacity of 8900 tons per annum.  The production facility is located at Mumbai-Nashik Highway. It has sophisticated production facilities with SchloemannSiemag Extrusion Press of 1650 tons of USA and 9000 dies of various extrusion/profiles and a quality assurance lab. It has an installed capacity to produce 20,000 tons of aluminium products annually. The company is led by Sudarshan Shriram Chokhani, Managing Partner.

The company reported a net loss of Rs 6.92 cr in 2016-17 due to increased financing costs, fuel charges, volatility in raw material prices and higher working capital requirements. The company is trying to implement cost reduction drives to improve internal efficiencies and operational excellence.

Sudal Industries reported a net loss of 69.24% at Rs 2.46 cr while sales improved 24.06% to Rs 28.31 cr in Q3FY18. On a half-yearly basis returns are impressive at 28.09% while annual returns were -7.17%.

On technical charts, RSI of 50.27 indicates neutral trend while ADX of 30 indicates uptrend and MACD has witnessed a crossover and indicative of reversal in direction of prices.

Target: 15  Duration: 2 weeks

#Bhoruka Aluminium Ltd (BSE: 506027) Category: Small Cap
Bhoruka Aluminium Ltd was established in 1979 and product range includes extrusions, anodising, powder coating and fabrication. The company is led by Rajkumar Agarwal, Chairman and Managing Director.

The company has reported loss of Rs 0.17 cr in Q3FY18. The company is not worth considering at present for investment.

#Golkonda Aluminium Extrusions Ltd (BSE: 513309) Category: Small Cap
Golkonda Aluminium Extrusions was set up in August 1988 as Progressive Aluminium Ltd with an annual capacity to produce 3125 mt and was taken over by O&S Metallimport GmbH of Alumeco Group, Denmark. The company name was initially changed to Alumeco India Extrusion Ltd and in 2015 as Golkonda Aluminium Extrusions Ltd.

Considering the present financial position of the company, it is not worth considering at the moment.

Summary
Despite the high demand and consumption pattern seen in aluminium extrusions industry, Indian players need to produce quality products at competitive prices. It requires improvement in productivity and quality, according to HT Makhijhani, President of Alumunium Extrusion Council (ALEX). Massive investments in smart cities, railways, metros, e-vehicles, solar energy and defence projects augur well for the aluminium extrusions industry as they require quality materials.

However, majority of the players are in the unorganised sector. Unless , Indian extrusion industry makes substantial investments to up-grade capacities to produce high quality extrusions, it is likely that major part of increased consumption will be imported.

The major consumers of aluminium extractions are building and construction followed by electrical and electronics, transportation, industrial sectors. Architectural applications such as doors, windows, curtain walls and glazing account for about 51% of the total extrusions usage in the building and construction sector. New applications such as formwork and scaffolding are also driving demand. Significant increase in power generation capacity also adds to aluminium extrusions demand, analysts said.

Thanks to ‘Make in India’ thrust aluminium demand is expected to rise to 8 mt in 2025 from 5 mt in 2020.

Government of India’s push for ‘Make in India’ especially in defence sector is expected to open up a gamut of opportunities for the white metal. Aluminium is widely used in defence equipment like military aircraft, ammunition hardware and missiles in the form of sheets, forgings and extrusions.