Robust Q3FY15 & 9MFY15 Results

BUY

G O OD LU C K S TE EL T U BE S
GOOD UPSIDE POTENTIAL

Rating

Buy

CMP (`)

82

Retail Desk

06 April 2015
Company Description:
Incorporated in 1986 and promoted by IITians, Good Luck Steel Tubes (GLSTL), is
engaged in manufacturing and exporting of wide range of Automobile CDW
Tubes, Forged Engineering Products, T&D Towers & Boiler Structure, Galvanized
Pipes, Roofing Sheets & Annealed Sheets. The Group is one of Indias leading and
fastest growing business groups with over 1800 employees and operates with
three manufacturing facilities and has warehouses in Pune, Nasik, Faridabad,
Ludhiana and Chennai. In April'95, it came out with a public issue to part-finance
the expansion project to expand the existing capacity of 32,000 tpa to 50,000
tpa. Currently, with all requisite facilities and domain expertise, GLSTL has the
capacity to manufacture & process around 2-lakh tpa of various steel products.

CORP.

Target Price (`)

130

Upside (%)

58

Key Data
BSE Code
NSE Code
Reuters code
Bloomberg Code
Sensex
Face Value (`)
Mcap (` Cr.)
52 week H/L (`)
2 Wk Avg Qty
Share holding,
December14
Promoters
Foreign
Corporates
DIs
Public

530655
GOODLUCK
GLST IN
28398
2
172
90/18
141000

GLSTLs main plant is located at Sikandarabad industrial area just 45 km from

Delhi. The plant has state of the art tube mills, galvanizing units, cold rolling
mills galvanized coil unit and corrugation machines. Also pipe and lattice type
structures are fabricated and galvanized. It also manufactures structured
products (customised and high-end technical products) used in oil & gas fields
and infrastructure projects, which generate high margins. It also specializes in
providing Telecommunication Structures, ERW Steel Tubes, ERW Steel Pipes, and
Galvanized Black Steel Tubes.

Holding %
Products:
61.9
Galvanized Pipes
1.1
Square & Rectangular Pipes
18.1
CR Coils & Sheets
CDW Tubes
2.0
Forgings
16.9
Bright Bars
Fabricated Steel Structure
6M
12M
Transmission & Telecom Tower Stuctures
74.5
310.0
Exports:
10.6
33.6 GLST exports maximum production to USA, Europe, Latin American and African
10.5
34.8 countries & Austria. It has presence across 70 countries (generating 40% export
revenues), which mitigates the risk of dependence on particular geography.

LTD

Performance
(%)

3M

Stock-GLSTL
BSE 200
BSE 500

17.1
6.4
6.4

Price Chart: (One-Year)

Key Financial:

Year-March

http://www.goodlucksteel.com
Vijay Dave
vijaydave@sunidhi.com
Ph: 91-22-6760 7700

Sales
PBIDT
Interest
PBDT
Depreciation
PBT
Tax
PAT
Equity
Reserves
Book Value (`)
EPS (`)
OP Margin (%)
NP Margin (%)
P/E

(GMDV)

(` crore)

9MFY15A

9MFY14A

FY14A

FY15E

FY16E

FY17E

809.66
62.67
27.41
35.26
7.07
28.19
7.51
20.68

746.3
56.0
27.16
28.85
5.58
23.27
8.26
15.01

9.4
7.7
2.7

7.5
7.5
2.0

975.43
70.96
35.38
35.58
7.56
28.02
10.3
17.71
4.0
140.2
72.1
8.9
7.2
1.8

1080.0
83.2
36.5
46.7
9.5
37.2
10.0
27.2
*4.4
178.4
83.1
13.0
7.7
2.5
6.3

1360.0
104.7
42.0
62.7
12.0
50.7
14.3
36.4
*5.2
238.0
93.5
14.0
7.7
2.7
5.9

1600.0
124.8
45.2
79.6
12.5
67.1
19.1
48.0
5.2
286.0
112.0
18.5
7.8
3.0
4.4

*Increased equity on account of allotment of shares @`70/share and `60/share in tranches.

Good Luck Steel Tubes

Application of Products

Cycle Industry, Cycle frame, forks, hub tubes

Chain Automotive, Industrial and Cycle chains
Automotive Industry Two/Three Wheelers Car, LCVs and HCVs, Chasis
Tube Bus Body Building Main Beam Tube Automobile Axle Tube Shock
Absorbers Propeller Shafts Steering Columns Tie Rod and Drag Links
Exhaust Tubes, Aluminised Tubes Front Fork Tubes for Two Wheelers
Hydraulic Line Tubing
Boilers and Heat Exchanges Chemical Industry, Sugar Industry Paper
Industry, Process Industry
Oil Industry Line Pipes to API specification
Furniture Industry Construction Industry Machinery Manufacture Air
pollution control Equipment Railway Coaches Electrical Industry
Transformers, Fan Down Rods Conduits

Clients

GLSTL is an approved supplier of to Indian automobile majors like Tata

Group, GAIL, ONGC, RIL, Cairn India, EIL, Gabriel, Mahndra & Mahindra,
Endurance, Munjal Showa Reliance Industries, BHEL, TRF, Ashok Leyland,
SML Isuzu, Honda, Maruti Suzuki and L & T and state governments among
others. Globally it supplies to Voestalpine Rotec, Bourgi USA and many
others. The product is in high demand in the American market and the
production of the new plant is likely to be contracted by USA buyers alone,
to be used in four-wheelers such as BMW, Audi, Volkswagen, Toyota etc.

Q3FY15 & 9MFY15

During Q3FY15, net profit has shot up by a whopping 198% to `7.4 crore on
3% higher revenue of `256 crore. OPM and NPM stood at 7.9% and 2.9% Vs
6.4% & 1.0% respectively in Q3FY14. Q3FY15 EPS stands at `3.5. During
9MFY15, net profit rose 38% to `20.7 crore on 8.5% higher sales of `810
crore. OPM and NPM stood at 7.7% and 2.7% Vs 7.5% and 2.0% respectively in
9MFY14. 9MFY15 EPS stood at `9.8 Vs `7.5 in 9MFY14.

Financial

Tiny equity of `4.2 crore is supported by reserves of `140 crore. The book
value of the share is `72 as at FY14. With debts of `287 crore, DER works out
to 1.7:1 as at H1FY15 whereas the value of the gross block is `220 crore.
Cash, investments, short term/long term loans etc stand at `78 crore (Rs
37/share).

Expansion

GLSTL has inaugurated its `96 crore, 30, 000 tpa manufacturing plant of
thick walled automotive precision tubes at Sikandrabad in Uttar Pradesh on
15th November, 2014. The capacity is now enhanced to 60, 000 tpa. In April
2015, when the plant is scheduled to go full stream, it will add up to top line
by `200 crore and & bottom line suitably. Thick walled precision tubes, an
alternative to seamless pipe, offers excellent market opportunity. Further,
GLSTL strategized to ramp up the manufacturing capacity of high yielding
verticals such as auto tubes, structures and forging.

Further Expansion

In the second phase of business expansion, GLSTLs Capex of `50 crore for
ramping up the capacity of structure vertical i.e. towers for PGCIL, NTPC
through BHEL & Siemens; heavy engineering structure for boiler
manufacturers such as ISFEC, Thermax; bag house and filtration system for
multinational companies like Boldrocchi Ecologia; structures for infra
projects such as DMRC through L&T-SUCG & last but not the least, the bogie
structures for Indian Railways. This expansion is expected to be completed
by December 2015 and commercial operation by April 2016.
Keeping the demand in consideration, GLSTL plans to do a further Capex of
`100 crore to modernize current plant and will add Auto forgings with latest
technology. The expansion of this forging division is expected to be
completed by December 2016 with commercially viable from April 2017. This
expansion will enable GLSTL to supply to global giants like Toshiba, Alstom
and ONGC etc., for their high range products.

Sunidhi Research |

Good Luck Steel Tubes

Foray into Railway Products

Foray into Power Biz

GLSTL got approved by Chittaranjan Locomotive Works (CLW) for

manufacturing in its forging unit the Armature Shaft of HTM for Electrical
Locomotives. Company has become part-I supplier to the CLW by successfully
supplying Armature Shafts.
GLSTL is currently registered with Rail Coach Factory (RCF) Kapurthala and is
getting registered with Integral Coach Factory (ICF) Chennai and Diesel
Locomotive Works (DLW) Varanasi for different parts of coaches/bogies used
in all trains. It is in the process of getting registered with Indian Railways to
offer steel tube fabrication products (coaches, flanges and brakes) in the
coming years.
GLSTL has also focusing on new structured products for solar business.
Recently, it has supplied products to two major solar projects and is already
working with big conglomerates such as
Lanco Infratech, ABB, Tata Projects, GMR Infrastructure and Rays Power
Experts to design the plant as per STAAD calculations and fabricate its
supporting structure using square pipes and purlins (Z, C and Sigma) for
profile type structure.

Focus on High Margin Business

GLSTL has been able to reduce its dependence on steel tube business from
70% in 2010 to 50% in FY14 due lower margin owing to slowdown in
infrastructure spending. It is targeting to reduce this business upto 25-30% by
FY2018. At the same time, it is strengthening its position in other verticals
(auto and forging businesses) by increasing the product portfolio to improve
the margin profile.

Steel Consumption on the Rise

Ernst & Young expects Indias steel consumption to grow to 83 million tonnes
by the end of 2014-15. The domestic steel demand is likely to grow at a
faster pace in comparison of world steel market; expected to grow at a rate
of 6.7% annually till 2016-17. In 2015, global steel demand grew at 3.6%.
In Europe, steel demand expected to increase by a robust 3% in 2015 on the
back of investment in the infrastructure and manufacturing sectors. US
imports (specifically steel sheets) are up 37% from last year. US steel
demand expected to improve on the back of residential construction, grown
automotive production and energy investments.
Currently, it is planning to diversify its forging business to cater to defence
(gun barrels), aerospace and oil & gas industries. It is continuously
monitoring the existing facilities for technical upgradation and modernisation
to restructure its product mix for better operating performance.

Prospects

A key driver of the economy, Infrastructure is highly responsible for

propelling Indias overall development. The industry enjoys intense focus
from the top officials of the Government for initiating policies that would
ensure time-bound creation of world class infrastructure in the country. This
sector includes power, bridges, dams, roads and urban infrastructure
development.
The need to upgrade Indias infrastructure is especially acute in its huge
cities. With the urban population projected to reach 500 million by 2017,
experts discuss what is holding India back. Indias public and private leaders
are working to sustain the remarkable economic growth that iis being racked
up. Priorities highlighted are ideas for improving governance, transparency
and accountability, while combating corruption, and enhancing
infrastructure.
Recognizing the almost limitless infrastructure requirements, the
government has called for $1 trillion in infrastructure spending in the five
years through 2017. The priorities include airports, ports, an elevated railcorridor in Mumbai, and almost 6,000 miles of new roads.

Sunidhi Research |

Good Luck Steel Tubes

Opportunity

Conversion Warrants

Valuation & Recommendation

The Ministry of Road Transport outlined plans for $120 billion worth of roadwidening projects with 65% of this fund targeted to be from the private
sector. Plans are on for $60 billion to be invested in Indias ports by 2020.
The Indian Planning Commission has estimated that the country will need 180
additional airports in the next decade. And the government has set ambitious
goals for wind, solar and nuclear energy, all of which will be needed to
supplement power from coal and gas. The Government has also recognised
existing infrastructure gaps and capacity constraints in the rail system, and
as a consequence plans large scale investment over the next five years.
The recent commitment by China and Japan to the tune of US$100 billion
and US$35 billion respectively in India, of which 50% is earmarked for Indian
Railways will create good business opportunity by infrastructure companies
including GLSTL. Further, the projection of 22,000 MW solar power (green
energy revolution) by year 2019 with an enormous investment of `17,000
crore will also augur well for the future prospects of GLSTL.
During May 2014, 10.85 lakh warrants were converted into equity at a price
of `70/share. In February 2015, 10 lakh warrants have been converted into
equity capital at a price of `60/share. Other 40 lakh warrants are expected
to be converted into equity share at a price of `60 by FY16. Enhanced equity
capital has been considered in the key financial.
Leveraging on advanced manufacturing facilities and engineering expertise,
GLSTL successfully catering to the needs of clients from Public sector,
Private sector OEMs and Central & State Government Departments. The team
of scrupulous quality control professionals strictly monitors every stage of
production to ensure International standards of quality.
Good Luck, a steel processor, converting basic steel to quality engineering
products. The products are being used worldwide by end-customers like
automobile manufacturers, infrastructure, engineering industries, oil & gas
industries etc. In the solar energy vertical, GLSTL supplies support structure
for solar panels. Relaxed FDI norms & increased privatization in reserved
sector such as defence also offers immense business potential.
GLSTL is visualizing a huge scope of its products such as CDW tubes, forging,
structure fabricated items in the Expansion of Railway Infrastructure. The
Company is eying a good amount of share from different railway projects.
Indian Railway, the life line of India, is in sharp focus from Government of
India as well as Global powers like China & Japan. A massive investment of
`8, 50,000 crore is planned by the Indian Railways in next 5 years.
In FY 2016, it plans to make a foray into forging vertical. Auto forging will be
a new addition in Good Lucks forging operations. Governments Make in
India drive offers enormous business opportunities to Indian forgers. As per
AIFI estimate, the Indian auto industry will touch the US$30-40 billion mark
by 2015 and this growth is expected to be led by exports, which will account
for US$20-25 billion. The commercial vehicle segment is contributing 70% of
the auto industry revenue.
With a major chunk of customer base across three verticals in 70 countries,
GLSTL is now ramping up its product portfolio by modifying and developing
new products to cater to both domestic and export markets. It will see
strong increase in export revenue going ahead, given the strong recovery in
major developed countries. This gives good revenue & profitability visibility.
At the CMP of `82, the share is trading at a P/E of 5.9x on FY16E and 4.4x on
FY17E. We recommend BUY with a target price of `130 (at a P/E of 7.0x on
FY17E) in the medium-to-long term.

Key Risks
Risk Mitigation
Sunidhi Research |

Volatility in foreign currency, fluctuating raw material prices and change in

government policies are key risks.
GLSTL is taking every measure and monitoring the key risks.
4

Good Luck Steel Tubes

Technicals Good Luck Steel Tubes

The stock of Good Luck Steel began its bull run almost a year back in mid-2014. Prices gained more than 4 times during
this period by rising from `20 to `90. The swiftness of the upmove has caused prices to now trend sideways. Postcompletion of this sideways move, prices are expected to resume their prior uptrend. We place a buy recommendation
on Good Luck Steel with an upside target of `115.

SUNIDHI SECURITIES & FINANCE LTD

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