Background: In the rush for Gold
during the great California gold rush of 1850s, the real winners were not the
gold diggers but the people who made shovel for these gold diggers. Therefore,
smart investors don’t dig for gold (all are doing that), but they are selling
shovels. Similarly, in today’s plastic led boom, the real winners would be
those innovative companies who are creating machines to cater to this industry.
Plastics represents one of the ubiquitous raw materials that finds use in a
wide gamut of industries ranging from packaging, agriculture, infrastructure,
construction, automotive, industrial manufacturing equipment, to mechanical
engineering. The global plastics industry is witnessing continuous shift of
production bases to low-cost countries specifically india. This coupled with
increasing foreign investments, and rise in the number of new manufacturing establishments
are presenting Asia-Pacific as a prime driver of growth in the plastics
industry. Packaging sector is one of the major consumers of plastics followed
by agriculture and infrastructure. Apart from being used as a substitute for
traditional materials, plastic packaging is being increasingly used in personal
care products, packaged foods and beverages markets.
Investment in plastics processing sector, specifically in
extrusion is around Rs. 29,600 crores till date and further investment is
expected as under : ( Source CPMA)
– 2015-16 – Rs. 3346 crores
– 2016-17 – Rs. 4028 crores
With its strong engineering skills and language advantage,
similar to the IT and automobile industry, India has become an outsourcing hub
for supply of parts and assemblies to the developed economies. Rajoo is taking
advantage of this opportunity by supplying to manufacturers in Europe, Russia,
USA and francophone countries.
The
Company: Rajoo Engineers is one of “the” most
innovative companies in
its space. Rajoo is in the capital goods sector, manufacturing plastic
processing machines specifically, extrusion and post extrusion machines for
producing films, sheets and various thermoformed and vacuum formed products.
With the growing demand for plastic newer players are coming and existing one’s
are ramping up the capacity. Plus given the nature of plastic industry, the
technology up gradation also has to be done relatively frequently. The plastic
industry is a relatively low margin industry and therefore, there’s always demand
for faster, efficient (low energy consumption) and cutting edge (i.e. one with
higher level of automation) machinery.
Rajoo engineers has been obsessed with creating technically
superior products. Whenever they have found a roadblock in
terms of R&D Rajoo has managed to forgeexcellent partnerships with World
leading foreign firms like Bausano Holding SRL Itlay, Hosokawa Alpine of
Germany and Commodore of USA. These partnerships have delivered
the goods for Rajoo and coupled with Rajoo’s excellent execution capabilities the company has managed to thrash
its rivals and
have grown quite strongly whereas its rivals have been struggling.
It has been able to successfully absorb and indigenize the technology from its
foreign partners and that has ensured that Rajoo’s tradition of delivering
highly cost effective, cutting edge products in record
delivery times is
continued. No wonder that when its more mighty peers
have not grown at all in
last 4-5 yrs, Rajoo’s turnover has more than doubled to over
101cr in last five years and the profits have improved significantly which is in stark contrast to its
rivals where their turnover or profits have hardly changed. Rajoo Engineers has
a wide range of products like, Monolayer and Multilayer brown films, downward
extrusion Brown Film lines, Thermoforming & PS Foam Vacuum Forming
Machines, PS/PE Foam Extrusion Lines, Twin Screw PVC Pipe Plant, PP Nonwoven
Fabric Making Machines , Drip Irrigation Pipe Plant For Dripper Flat And Round
Dripper and these products find application in Flexible packaging, Agriculture,
Infrastructure, Automobile, White Goods, Stationary, Technical Textile and
Healthcare.
Rajoo
The Leader:
§ India’s biggest and one of the world’s largest suppliers of ‘end-to-end thermoforming
solutions’.
§ Market leader in blown film
lines,
sheet lines and thermoformers in the Indian sub-continent
§ Repeat business of around 60% is a
clear indication of the satisfaction levels of existing customers. Almost half
is export repeat business and is from US, Germany, UK that standout as
acceptance by the most stringent and developed markets of the world.
§ Rajoo Has the widest
range of mono and multilayer blown film lines
§ The first Indian company to introduce foamed sheet line and thermoformers in the country.
Technical
Collaborations:
1. Bausano&Figli, Italy (www.bausano.it)- Rajoo entered into a Joint Venture with Bausano&Figli, Italy
along which it formed a JV caled Rajoo Bausano Extrusion Pvt. Ltd. Rajoo
successfully capitalized the technology for effective production of PVC pipes
and profiles in India.
2. Commodore LLC., USA (www.commodoresolutions.com)- With the objective of being the first
Indian company to
introduce foamed sheet line and thermoformers inn the country, Rajoo entered
into a technical collaboration with theleading world player Commodore LLC.
Commodore brought its experience of more than 25 years in extrusion technology,
especially for PS foam extrusion and thermoforming.
3. Hosokawa Alpine AG, Germany (www.alpinehosokawa.com)
– A technical collaboration
with HOSOKAWA ALPINE of Germany (one of the most reputed companies globally in blown film
technology) was formed to produce ‘hybrid’ solutions with the
Alpine technology at the Rajoo’s manufacturing site at Rajkot and would serve
the markets in India and Anglophone Africa.
Valuations: Rajoo, has a track record
of very strong consistent dividend payout.
Contrary to extreme slowdown in the industry the Rajoo,
has shown strong growthand is expected the increase the pace of
growth in future. No wonder the promoters have increased their holding
from 48.86% to 67.86% in
last four years. The company also has a very healthy interest coverage ratio of above 10%. The stock is available
at very reasonable low double digit multiple whereas its growth-less peers are
quoting at much higher pe.The stock in H1
FY15 has given a 31%
increase in sales YoY and profits haveincreased 217% for the same period. What is phenomenal is
that their strongest quarter of the year is yet to come.
One of the reasons for the stock to be ignored by the markets is that it is
small cap along with the fact that earlier it was trading below rs 10 (just
like vidhi), but what people “fortunately” (for investors like us) ignore is
that it’s a FV 1 stock. Hence, thankfully, the stock is undiscovered with no
big investors as yet.
Technicals: The stock has given a
multi-year breakout and inspite of all the market mayhem, it made a new multi-year
high very recently. Stock is looking supremely bullish.
If somebody is betting on capital goods industry and
infrastructure revival, this is one best proxy for it.
