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Hercules Hoists

April 10, 2007

A Shekhar Bajaj group (promoter stake 70%) company, Hercules Hoists produces chain-pulley block, electric hoists, trolleys and cranes in technical tie-up with Heinrich De Fries, GmbH, Germany. Hercules Hoists’s manufacturing facility is equipped with CNC, gear cutting and broaching machines. The combined installed capacity is 29,250 numbers per annum. The company is also developing a new range of wire-rope electric hoists jointly with Bull S.r.l., Italy. It holds a 40% market share in the chain-pulley-block market, 20% market share in wire-rope electric hoists, and a massive 90% in CEM.

The enviable set of customers include automobile manufacturers Tata Motors, Mahindra & Mahindra, Maruti Udyog, New Holland, Escorts, Premier Auto, Bajaj Auto, Kinetic, Ford India, Daewoo Motors, Ashok Leyland and Punjab Tractors. In the steel industry, the company caters to Tata Steel, Bokaro Steel Plant, Rourkela Steel Plant, Sail, Mukund, and Jindal. In the cement sector, the users are Ultratech, Ambuja Cements, ACC and Birla Cement. The state electricity boards include MPEB, RSEB, MSEB and BSES.

Hercules Hoist has invested Rs 12.50 crore to produce 2.5-MW wind energy, a new business. The company further invested Rs 6.25 crore in a 1.25-MW windmill in FY 2006 and started producing from the expanded capacity in March, 2006. It put in another Rs 6.25 crore for another 1.25-MW wind mill in FY 2007.

Net sales of Hercules Hoists registered a solid rise of 24% to Rs 22.31 crore and net profit 61% to Rs 4.12 crore in the December 2006 quarter,.

Sales rose 40% to Rs 62.32 crore, and profit after tax (PAT) shot up by 107% to Rs 12.90 crore in the nine months ended December 2006.

The handsome increase in revenue was due to the introduction of a range of higher capacity hoists in various models. Another reason for the rise in sales was market demand, aggressive marketing, wider product range, competitive product prices, and faster deliveries. Cost cutting and various operational restructuring have resulted in improved profitability.

Pick-up in capital expenditure across various industries including speciality steel, mining, power and automobile, and investment in infrastructure have lifted the demand for material-handling equipment. To cope with the rising demand, Hercules Hoists has planned an investment of Rs 5 crore in a new factory to enhance capacity. Approximately six acres of land have been purchased to put up the new factory in Village Dhamani at Khopoli, in district Raigad of Maharashtra.

Interestingly, Hercules Hoists has 83,694 shares of Bajaj Auto bought at Rs 73 lakh — a purchase price of just Rs 87 per share. At current rates, these shares are valued at a huge Rs 21.04 crore — a potential cash per share of Rs 131.5 of Hercules Hoists.

Hercules Hoists is expected to register sales of Rs 84.24 crore in the FY 2007. Net profit can be projected at Rs 16.77 crore. On an equity of Rs 1.60 crore and face value of Rs 10 per share, EPS works out to Rs 104.8. Book value can touch Rs 280. The company can register EPS of Rs 129.8 in FY 2008. The share trades at Rs 1320. This discounts our FY 2008 projected EPS only 10 times.

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