The government’s thrust on increasing industrial production continues to benefit a couple of industries. The Central Government introduced the performance-linked incentive schemes (or PLI) for multiple sectors such as pharmaceuticals, textile, consumer durables, fast-moving consumer goods (or FMCG). In our bid to bring out fundamentally strong companies, we came across Tube Investments (NS:CHOL) of India Ltd (NS:TBEI).
Tube Investments of India Ltd
Tube Investments of India (or TII), is a Murugappa Group company. It manufactures fabricated metal products and specializes in cycles, steel tubes, strips, chains, and metal-formed items. The stock is a part of the Nifty Auto index which jumped 7.5% in the last month. Recently, Tube Investments has signed an MoU with Tamil Nadu (NS:TNNP) Government to set up an electric vehicle (or EV) component manufacturing facility.
The company has successfully completed the initial integration process of its recently acquired CG Power and Industrial Solutions with itself. After its takeover by TII, CG Power exhibited a strong performance in the first half of fiscal 2022 with the latter’s revenue jumping 2.45 times year-on-year to Rs 2,504 crore compared to Rs 1,026.6 crore in H1FY2021. CG Power's robust order book coupled with a strong brand value is expected to improve its future performance. The acquisition has given a strong boost to Tube India’s superior market position across segments backed by a diverse product portfolio.
Tube Investments of India posted a solid 245% year-on-year revenue growth in the first six months of FY2022 ended September 2021 with revenue amounting to Rs 5,700.2 crore. The top-line growth was achieved through additional revenue from CG Power, increased realizations, healthy export demand, and improved domestic demand. Although its 3-year revenue CAGR is in negative territory, its net profit CAGR remained a healthy 23% during the period. Return on equity remained 18% for a 3-year period.
TIIL’s ability to pass on input price hikes to customers in spite of rising commodity prices is accretive to its bottom-line growth. Operating margin growth is pushed by a host of cost-saving initiatives and consolidation exercises undertaken by the company. Tube Investments had successfully maintained its operating margins in the first half of FY2022 despite a steep rise in commodity prices over the past months.
In September 2021 quarter, mutual funds and DIIs have increased their holding in the company by 0.5% and 0.25% respectively. On the other hand, FIIs have reduced their stake by 0.61% in the quarter. The scrip appears favorable based on major technical parameters such as RSI, MACD, and 10-day/20-day/30-day/50-day/100-day/200-day EMA.