Roto Pumps: Our 3-Bagger Stock - ROI @ 201% in 22 Months

Dear Reader,

Our equity analysts published Hidden Gem - Aug 2012 research report and shared it with all Hidden Gems members.  Research report was published 22 months back on 05th Aug 2012. Hidden Gem stock of Aug'12 was Roto Pumps Ltd (BSE Code: 517500) and our team recommended buy at average price of Rs. 95 for target of Rs. 220 in period of 18-24 months.

We are glad to inform you that Roto Pumps target price of Rs. 220 was already achieved couple of weeks back. Today, Roto Pump Ltd has made its all time high of Rs. 286.10 (201% returns) and is frozen at upper circuit of 5%, Roto Pumps is now a 3-Bagger stock for our members within period of 22 months.

We are not suggesting any partial profit booking yet as we believe company is getting re-rated considering attractive valuations and strong growth outlook for pump Industry in India and abroad. Recently, company has announced setting-up of a joint venture company in Singapore. The joint venture company would further make strategic investments in the related field including business development of Company’s products in African continent. We suggest our members to hold this stock in their portfolio. For such small companies, its very important to know whether management is prudent and taking care of minority share holders or not, Roto Pumps meet our expectation. Company is paying regular dividends since last 9 years and dividend payment has increased from Rs. 1 to Rs. 3 and dividend yield was 4% at the time of our recommendation. Operating profit margin of the company improved from 16% to 18% with sales growth of 17%, profit growth of 21% and ROE of 24% during last 5 years. 

There are 11 more Hidden Gems out of 30 published by our equity analysts in last 3.5 years which have given more than than 100% returns to our members within 12 to 18 months time period. We suggested partial profit booking in many of these stocks and our members en-cashed more than 100% returns and now hold remaining quantity for free in their portfolio.

We also like to share that there are Hidden Gems which gave negative returns to our members but downside was limited. We suggested our members to exit from some of these non performing companies to ensure that they utilize their capital in the most optimum way. 

Below is the summary of Roto Pumps Ltd shared by our team under Hidden Gem research report - Aug'12.

Company Background

Roto Pumps is an engineering company with global focus. With presence in over 40 countries, company aims to provide localized solutions in application engineering, deliveries and sales support.

As a positive displacement pump manufacturer, company continuously endeavors to increase our pump basket to cater to wide spectrum of industries and applications. Roto Pumps basket consists of Progressive Cavity Pumps, Twin Screw Pumps, Dosing Pumps, Food Pumps and General Purpose Pumps.

Company greatest asset is the application expertise gained in the last 40 years in providing fluid engineering solutions to thousands of customers worldwide.

Company’s manufacturing infrastructure spans over 20000 sq. meters and is equipped with machine tools like CNC and other SPMs. The units are certified with ISO 9001-2000 quality surveillance systems and it has the coveted ATEX certification. One of the focus area of company’s manufacturing is the Research and Development. This facility is equipped with state-of-the-art testing equipment, captive machine shop and design centre. 

Infrastructure 

Roto Pumps has strong roots in manufacturing engineering and has over the years been able to develop efficient manufacturing processes both in the field of metal cutting and rubber processing. Spread over a combined factory area of 20,000 sq. meters, these units are equipped with sophisticated machine tools like CNC and other SPMs. These are also geared up with modern testing facilities including water and oil test bed with sophisticated data.

The continuous investments in precision instruments in in-house manufacturing facilities for critical components ensure 100% control over quality and customer satisfaction. Roto Pumps manufacturing units are certified for conformance with the ISO 9001-2008 quality surveillance systems. We are also in the process of acquiring ISO 14001 and OHSAS 18001 (Occupation, Health, Safety & Environment) certifications.

Research and Development

Roto Pumps Research and Development facility is the concrete realization of its philosophy of providing cost effective fluid engineering solutions. It translates concepts into prototypes and prototypes into final product. Our Research & Development team was also instrumental in helping the company to get its product accredited to ATEX certification. 

This facility is equipped with state-of-the-art testing equipment, a captive machine shop and design centre. The design centre is equipped with 3D designing software (solid works) and also deploys advanced software for flow analysis, mechanical strength and cost optimization. Staffed with highly qualified and experienced professionals, the Roto Pumps R&D centre is playing a critical role in helping the company maintaining its leadership by continuously upgrading the technology as well as expanding the product range. 

Sales Network

Roto Pumps Ltd marketing head office is in Noida, India. Company has its branch offices and warehouses in United Kingdom and Australia to cater to the large Europeon markets. It has also established prominent distributors all over Europe, Middle East, South East, Far East and North & South America. Recently, company started a subsidiary in Germany. 

Recent Developments (05th Aug 2012)

1. Increasing product reach by offering Innovating Solutions to Customers

Roto Pump is actively participating in events related to pump industry to add new customers. Company has recently invited its existing and new clients from different geographies to attend events like STAI India scheduled from 24^th – 26^th Sept 2012 at Hyderabad, India and Weftech 2012 scheduled from 1^st – 3^rd Oct 2012 at Louisiana, USA.

2. Roto Pumps Capacity Expansion

Roto Pumps Ltd, manufacturer of progressive cavity pumps and twin screw pumps, started capacity expansion plan two years back. The expansion was taken place on the plot allotted to the company by Greater Noida Industrial Development Authority.

The Authority has allotted us 20,000 sq. metres of land in Sector Ecotech-XII. Company planned to start civil works on the expansion project by 2009-end and commercial production was expected to start by end of 2011.

Company has imported machinery to the tune of Rs 5 crore for capacity expansion. The project was funded through internal accruals and bank loans.

Roto Pumps products are widely used abroad in sectors like oil and gas, pharmaceuticals, food industry and especially in waste water treatment plants. The company is also planning to diversify its business.

Financial Performance (05th Aug 2012)

Roto Pumps net profit rises 93.94% in the March 2012 quarter 

Roto Pumps net profit rose 93.94% to Rs 25.6 million in the quarter ended March 2012 as against Rs 13.2 million during the previous quarter ended March 2011. Sales rose 44.36% to Rs 24.57 million in the quarter ended March 2012 as against Rs 17.02 million during the previous quarter ended March 2011. 

For the Audited full year, net profit rose 34.88% to Rs 72.7 million in the year ended March 2012 as against Rs 53.9 million during the previous year ended March 2011. Sales rose 28.43% to Rs 759.9 million in the year ended March 2012 as against Rs 591.7 million during the previous year ended March 2011.

Roto Pumps net profit rises 87.41% in the December 2011 quarter

Net profit of Roto Pumps rose 87.41% to Rs. 25.3 million in the quarter ended December 2011 as against Rs. 13.5 million during the previous quarter ended December 2010. Sales rose 36.76% to Rs. 212.74 million in the quarter ended December 2011 as against Rs. 155.56 million during the previous quarter ended December 2010.

Key Concerns & Risks (05th Aug 2012)

1. The Indian market is becoming intensely competitive with cheap imports from China predominantly in the simple water handling pump market & presence of multi-national companies in the high end of industrial segment.

2. The Indian companies would have to continuously invest in R&D, Manufacturing and Product Technology in order to improve product efficiency and cost effectiveness to retain and grow their market share.

3. There is going to be pressure on margins due to steep increase in input costs & Interest rates. The Government approach to rein in the Inflation is having a dampening effect on the growth of the economy and sluggishness towards reforms is hampering the inflow of Foreign Investments.

4. Cheap Imports backed by favorable commercial terms from China pose a definite risk to the Domestic industry.

Saral Gyan Recommendation (05th Aug 2012)

1. Steady growth in Indian economy especially increased investments in infrastructure & development projects will continue to provide enough opportunities. International market also offers good opportunities in niche market despite sluggish economic scenario.

2. Roto Pumps valuations are attractive compared to other listed players like KSB pumps, WPIL, Kirloskar and Shakti pumps. Roto pumps is trading at PE of 4.5 whereas other companies like KSB pumps and WPIL are trading at PE multiple of above 14 and 16 respectively.

3. In terms of revenue, Roto pump is a smaller player compared to its peers. With recent capacity expansion programme; there is enormous potential for the company to scale up its business. Another positive about the company is its operating margins, Roto pumps operating margins are better compared to other listed companies in the same segment.

4. As per our estimates, PEL can deliver bottom line of 96 million for full financial year 2012 – 13, annualized EPS of Rs. 31 with forward P/E ratio of 3.4 X for FY 2012-13, which makes stock an attractive and safe bet at current market price.

5. Company has paid regular interim dividends to share holders since last 7 years, dividend payout is increased from 100% in 2005 to 250% in 2011.

6. On equity of Rs. 30.91 million the estimated annualized EPS for FY 12-13 works out to Rs. 31 and the Book Value per share is Rs. 99.61. At current market price of Rs. 105, stock price to book value is 1.05 and with dividend yield of 2.4%, valuations are attractive with limited downside risk.

Considering attractive valuations and the growth potential of the company, Saral Gyan Team recommends “BUY” for Roto Pumps Ltd. for a target of Rs. 220 over a period of 18-24 months.

Buying Strategy:

• 50% at current market price of 105
• 50% at price range of 83-85 (If stock price falls during market correction)

Roto Pumps Ltd is 1 of those 12 Hidden Gems which gave more than 100% returns to our subscribers during last 3.5 years. Team of equity analysts at Saral Gyan put lot of efforts & smart work to identify Hidden Gems (Unexplored Multibagger Small Cap Stocks) and Value Picks (Mid Caps with Plenty of Upside Potential) which not only grow your capital at a healthy rate but also ensures protection of your capital during market downturn.

To Read / Download Saral Gyan Hidden Gem - Aug'12 Research Report - Click Here

An opportunity missed an opportunity lost. Start building your equity portfolio by investing in Hidden Gems and Value Picks of stock market. The stocks we reveal through Hidden Gems & Value Picks are companies that are either under-researched or not covered by other stock brokers and research firms. We keep on updating our subscribers on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.

Subscribe to Hidden Gems & Value Picks and start investing systematically. Avail attractive discounts by subscribing to our combo packs, click here for details. 

In case of any queries, simply write to us. We will be delighted to assist you!

Regards,

Team - Saral Gyan.