Pitti Laminations – The Great Turnaround story

- Hyderabad based manufacturer of electricallaminates and other capital goods

- Company was declared “sick” in the year 2000

- BIFR (Board for Industrial and Financial Reconstruction) intervened in 2002 and a one time settlement was instituted between IDBI and DCB (Development Credit Bank)

The company`s great turnaround began from 2002

Product Profile

Laminations Die Cast Rotors Stator Core assemblies

Rotor Core assemblies

Casting and Machine

components

Power Generation, Locomotives, Industrial Motors, Oil & Gas and other Industrial sectors are End Users

Source: Pitti Earnings Presentation Q1 FY 2014

Laminations, Tooling, Casting and Machining: All under one roof

THE LAMINATE PRODUCTION PROCESS

Buys Domestic and Imported Raw Material(mostly Silicon Steel)

Material is cut And pressedNotch, Cleat, Rivet and Weld

Company makes 50-1200 mm diameter laminations

32000 MTpa plant located in Hyderabad

Star Studded Customer BaseCustomers Laminations Machining Casting

Source: Pitti Earnings Presentation Q1 FY 2014

Company Time Line

2000• Writes off Rs 3 Crs of bad loans• Reports loss of Rs 8 Crs leading to bankruptcy

2002• BIFR intervenes and initiates a one time settlement• Promoters bring in Rs 2.1 Crs

2003• Debt service charge reduces to Rs 1.3 Crs from Rs 3.6 Crs thanks to restructuring• Reports PAT of Rs 1.3 Crs after 5 years of making losses

2004

• Record PAT of Rs 3.8 Crs and good cashflow brings total debt down to Rs 6 Crs, from Rs 10 Crs, an year back

• Company plans expansion

Company Time Line (contd)

2005 – A Record Breaking Year

- Manufacturing unit`s capacity utilization tops 110%- Company starts supplying to GE (USA)- 90% of company`s export volume to GE (USA)- 15% dividend on 10 rupee share- Promoters buyback IDBI`s 14% stake- Rs 24 Cr expansion underway

Promoter`s strong backing was main cause of this excellent performance

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Total Sales (Rs Crs)PAT (Rs Crs)

Company`s Sales and PAT progression

Low PAT margins

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Total Laminate Sales Volume (MT)

Consistent growth in Laminate Sales Volume

Company has added Motor housings/Stator Cores (not shown in graph) to product line in 2008. Rs 70 Crs of revenue in first year from this product.

Company`s Laminate Sales Volume (MT)

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Export Value as % of Total Turnover

Export Value as % of Total Turnover

A Star Exporter

Export oriented company

Siemens only client

Company starts supplying to GE

Company Claims That it...

- Holds 90% market share in Indian electrical laminates industry

- Is one of the few companies in the world to have laminations, tooling, casting and machining under one roof

- Is the First Indian Laminates Company to have initiated an Oracle based ERP driven environment

- Is the First Indian Laminates Company to have ISO accreditation in quality systems

- Received Best Supplier Award from GE Transportation in 2012

Company is a pioneer in this sector

And the Weaknesses

- Very low PAT margins

- 50% of total sales dependant on GE Transportation, GE Energy and GE Industrial

- Capital goods sector worst hit, both in India and abroad

- Very low liquidity makes it difficult to buy the stock

Manageable Weaknesses

The BUY recommendationMarket Valuation/Promoter Reputation and good Corporate Governance are main factors

- At CMP of Rs 33 and current market cap of Rs 45 Crs and working cap requirement of Rs 170 Crs, the stock is a net-net

- Company`s products are ubiquitous in energy, railways and major industrial sectors

- Company is a pioneer and market leader in its industry- Consistent dividend payout in last 8 years- Promoters hold 60% stake and have ridden with the company`s ups

and downs- Promoters have not pledged any shares for personal purposes*- Manageable Debt-Equity ratio of 1.4x- Current P/E stands at 4.5x

* Source: Pitti Earnings Call Transcript Q3 FY 2013

FII`s hold 0% stake (remember Avanti Feeds)

Thank You – The Pokaran Money Manager* Source: WSJ.com, Mr Buffet and his Elephant gun