Industrial Gases: Bearish, Risky Despite Robust Growth in Demand | CORPORATE ETHOS

Industrial Gases: Bearish, Risky Despite Robust Growth in Demand

By: | May 29, 2018
Industrial Gases

Industrial gas market is expected to witness robust growth in the next five years on government initiatives towards developing manufacturing, rapid industrialisation. Petrochemicals sector is one of the major consumers of industrial gas. This sector is expected to grow at a compounded annual growth rate (CAGR) of 13% during 2015-20, according to a report by Research and Markets. Other major consuming industries for gases are oil and gas, chemicals, power, mining, steel, metals, environmental protection, medicine, pharmaceuticals, biotechnology,food, water, fertilizers, nuclear power, electronics and aerospace.

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The size of the industrial gases market in India is expected to reach US $2.2 bn by 2021. Nitrogen, Oxygen and Argon are the most commonly used industrial gases. Increasing demand, competition has forced existing players to make huge capital expenditure on capacity addition. Large number of end users are also setting up industrial gas production units to ensure captive supply of the gases. Major end users of gases in meals, mining sector are Tata Steel, JSW, Bhushan Steel and Vedanta.

Amidst the positive developments seen in industrial gases sector, here is a look at the prospects of major listed players.

#National Oxygen Ltd (BSE: 507813 ) Category: Small Cap
National Oxygen Ltd was established in 1974  and is a leading producer and supplier of industrial gases both in liquid and gaseous forms. It has a capacity of 2500 m3 per hour of Oxygen/Nitrogen gases and 2,00,000 m3 per annum capacity of Dissolved Acetylene gas having manufacturing facilities at Pondicherry and Tamilnadu.

The clients include public sector units, government workshops, petrochemical units, steel, pharmaceuticals, refrigeration units, hospitals, shipping, fabrication sectors. Main products include industrial liquid oxygen, industrial gaseous oxygen, industrial liquid nitrogen, medical grade oxygen liquid, medical grade oxygen gas, high purity nitrogen gas..

In Q4FY18, operating profit to interest was highest at 1.13 times, net sales was highest at Rs 10.82 cr and net profit and at Rs0.62 cr. However, in the past one year it has under performed the Sensex by -24..84 and industrial gases sector by -25.11 %. On technical charts, RSI of37.35 indicates bearishness, ADX of 23 indicates range bound trade while MACD has witnessed a bearish crossing.

Target: Nil

#Linde India Ltd (BSE: 523457, NSE: LINDEINDIA) Category: Mid Cap
Linde India Ltd, formerly BOC India Ltd, belongs to the The Linde Group (Germany) and is a leading industrial gases company in India. It operates India’s largest air separation plant and has 20 production facilities and filling stations across the country. It has the largest sales and distribution network in the country. The Indian operations are lead by Mr Sanjiv Lamba, Non Executive Chairman and Moloy Banerjee, Managing Director.

The company achieved profitable growth in FY17 in the gases division based on innovation and cost competitiveness. The company manufacturers ENTONOX, a homogenous mixture of nitrous oxide and oxygen to be used as a self- administered analgesic for labour pain management. In automobile industry, Linde Shielding Gases like VARIGON, CORGON and CRONIGON ensure high productivity and efficiency.
The company reported a revenue of Rs 2115 cr in FY 17 to 1979 Cr the previous year, while net profit rose to  Rs 24.4 cr. The Onsite business, which is a substantial part of the overall gasesbusiness of achieved a robust growth of about 12% overthe previous year. During the year, the loading of all major onsite AirSeparation Plants at Jamshedpur, Bellary and Rourkela was higher thanprevious year on the back of positive momentum seen in the steelsector.

In Q4FY18, the net profit rose 73.68% to Rs 2.38 cr while sales rose 1.85% to Rs 527.64 cr. On technical charts,RSI of 38.20 is bearish, ADX of 13.54 indicates range bound trading while MACD has witnessed a bearish crossover.
Target: Nil.`

#Bhagawati Oxygen Ltd (BSE: 509449) Category: Small Cap
Bhagawati Oxygen Ltd was established in 1972 and has plants in Ghatsila, Bihar with a capacity of 25 tons per day and at Ballabhgarh, Haryana with a capacity of 140 cmtr ph. The major clients of Bhagwati are NTPC, Siemens, SAIL, KPTCL, DUC.

The company reported sales of Rs 10.62 6 crore in FY17 compared to Rs 10.70 cr the previous year. Net profit rose to Rs 89.73 lakh. It had enhanced its capacity by setting up a new 50 TPD oxygen plant at its existing manufacturing facility.

The company reported 28.48% decline in net profit at Rs 0.30 cr in Q3FY18 while sales fell 24.21% to Rs 2.17 cr. The company has provided 40% returns on monthly basis while it is 3.67% on half-yearly basis.

It is trading at a PE of 15 indicative of moderate pricing and RSI of 33.45 indicates bearishness, while ADX of 20 indicates range bound trading and MACD has witnessed a bearishness crossover.

Target: Nil
#Refex Industries Ltd (BSE: 532884, NSE:Refex) Category: Small Cap

Refex Industries Ltd was established in 2002 and was formerly known as Refex Refrigerants Ltd. It is a specialist refiller and distributor of Refrigerant gases in India, particularly, environmentally acceptable gases that are replacements for Chloro-flouro-carbons (CFC). They are use as refrigerants, foam blowing agents and aerosol propellants. The company reported a net loss of Rs -1.35 cr and sales growth of near 400% at Rs 28.89 cr.

It is trading at a PE of 23 indicative of moderate valuation by market. On technical charts, RSI of 36 indicates bearishness while ADX of 10.93 denotes range bound trading. MACD has witnessed a bearish crossover. In Q4, earnings per share was lowest at -0.87, inventory turnover ratio was 14.81 times (half yearly basis), net profit falls -352% to Rs 1.32 cr. It has underperformed the Sensex by 14.58% annually and gases sector by -14.81.

Target: Nil

Summary

The industrial gases market were impacted in the past two years by lower demand in steel sector high competition and higher operating costs for some companies. Cost reduction, strategies, innovation and diversification are key to sustainable growth of gases industry. Fluctuating demand from end user industries were also visible in the turnover of companies in gases sector. Refex Industries reported 51.60% drop in sales in FY17 at Rs 37.712 cr. Meanwhile, there are fears about the merger of Germany’s Linde and US-based Praxair which could have impact on market pricing of their products in India. However, Linde has responded to a Competition Commission of India (CCI) query saying that there is enough competition in India from domestic players such as Air Products, Air Liquide and Taiyo Nippon Sanso and therefore a monopoly situation won’t prevail. At this point of time from the investor point of view industrial gases segment looks risky or overpriced.