Tube Investments of India Ltd (TII), a leading manufacturer catering to multiple industries, has acquired a 67% stake in Lotus Surgicals Private Limited, cementing its position in the market. With promising financials and robust growth strategies, TII is making strategic moves to diversify its portfolio and strengthen its market presence. However, the company needs to mitigate potential risks associated with high book value and possible capitalization of interest costs. This blog post takes a detailed look at TII’s recent acquisition, financial performance, and future prospects
In a strategic move to consolidate its market position, Tube Investments of India Ltd (TII), a foremost manufacturer serving major industries like Automotive, Railway, Construction, Mining, Agriculture, and more, has acquired a significant 67% stake in Lotus Surgicals Private Limited. This acquisition, executed on 10th May 2023, makes Lotus a subsidiary of TII, opening new avenues for growth and expansion.
TII has been a robust performer in the market, boasting a market cap of ₹ 53,110 Cr. and a current stock price of ₹ 2,750. The company’s main business verticals encompass Engineering, Metal Formed Products, and Bicycles. In its continuous pursuit of growth, TII has ventured into TMT bars, Truck Body Building business, and is exploring opportunities in optic lens and other vision systems for the Auto industry.
TII’s financial metrics depict a promising picture with a profit growth of 37.2% CAGR over the last five years, and a healthy dividend payout of 18.3%. The company has also been proactive in reducing its debt, further bolstering its financial stability.
However, every investment comes with its share of risks. TII’s stock is trading at 15.4 times its book value, which may be a concern for potential investors. Another point of caution is the possibility of the company capitalizing its interest cost.
A quick glance at TII’s quarterly results reveals a consistent growth trajectory. Despite a slight dip in the quarterly profit variation in Dec 2022, the company has showcased an impressive sales growth of 23.9%. The consistent EPS and robust ROCE of 29.4% further underline the company’s strong performance.
When it comes to cash flow, TII reported a net cash flow of -₹ 101 Cr. in Mar 2022. This, however, should be viewed in conjunction with the company’s strong cash from operating activity at ₹ 877 Cr.
With the recent acquisition of Lotus, TII’s potential for growth seems to be on an upward trajectory. Backed by a solid financial performance and a strategic approach towards expansion, TII is poised to make significant strides in the market. Investors and market watchers should keep a keen eye on this company as it continues to navigate its growth journey.
The following are some positive aspects of Tube Investments of India Ltd:
- Reduction in Debt: The company has successfully managed to decrease its debt, which could signify a more efficient use of its resources and may result in lower financial risk.
- Strong Profit Growth: The company has shown good profit growth of 37.2% CAGR over the last 5 years. This demonstrates a healthy upward trend in profitability, which is a positive sign for investors.
- Healthy Dividend Payout: The company has maintained a consistent dividend payout of 18.3%. This is a positive indication of the company’s profitability and its commitment to returning profits to shareholders.
- Robust ROCE and ROE: The company has demonstrated a strong Return on Capital Employed (ROCE) at 29.4% and Return on Equity (ROE) at 28.1%. These metrics indicate efficient utilization of capital and equity, respectively.
- Acquisition of Lotus Surgicals Private Limited: This strategic acquisition, in which TII now holds 67% of Lotus’ shares, could potentially open new revenue streams and diversify the company’s portfolio.
- Positive Sales Growth: Tube Investments of India Ltd has seen a sales growth of 23.9%, indicating a strong market presence and demand for its products.
- Diverse Product Portfolio: The company’s wide range of products caters to several major industries, which can help to mitigate risks associated with any single sector.
- Strategic Foray into New Industries: The company’s expansion into TMT bars, Truck Body Building business, optic lens, and vision systems for the Auto industry shows a forward-thinking approach and potential for future growth.
Despite Tube Investments of India Ltd’s (TII) impressive performance and strategic growth initiatives, there are certain aspects that potential investors should consider. Here are some potential downsides:
- High Stock Price to Book Value Ratio: TII’s stock is trading at 15.4 times its book value, which is significantly higher than the industry average. This could indicate that the stock is overpriced, representing a potential risk for investors.
- Potential Capitalization of Interest Cost: There are indications that the company may be capitalizing its interest costs. While this can enhance the appearance of profitability in the short term, it can also lead to inflated asset values and lower reported expenses. Over time, this practice could lead to financial instability and increased risk for investors.
- Low Dividend Yield: With a dividend yield of just 0.13%, TII may not be the best choice for income-focused investors. While the company has been maintaining a healthy dividend payout of 18.3%, the low dividend yield could be a deterrent for those seeking regular income from their investments.
- Negative Cash Flow: In March 2022, TII reported a negative net cash flow of ₹101 Cr. This could be a sign of potential liquidity issues and might affect the company’s ability to invest in growth opportunities, service debt, or return money to shareholders.
- High PEG Ratio: TII’s PEG ratio stands at 1.77, which is considered high. A PEG ratio over 1 often suggests that the stock is overvalued or that the company’s earnings growth is expected to slow.
While these factors do raise concerns, they should be evaluated in the broader context of the company’s overall performance, market conditions, and long-term growth strategies. It’s always recommended for potential investors to conduct comprehensive due diligence before making investment decisions.
