Technocraft on a roll with two main units doing well

ET Intelligence Group: Technocraft Industries, world's second largest drum closure company is seeing a strong growth in its scaffolding business in the overseas market. The company expects the scaffolding business to become its next growth driver. Though the stock has gained 80% in the past six months, its current valuation continues to look attractive considering the growth prospects.

Each of its two businesses - drum closure and scaffolding -contribute one-third to the total revenues and the rest is from fabrics and yarn.

The scaffolding business more than tripled to Rs 290 crore in five years to FY16, but declined in FY16 due to lower steel prices. The volume growth, though, was strong. “In scaffolding, we have recently received all the approvals and licences to operate in the US and Europe. This will allow us to sell high margin and complicated products,“ said Sharad Saraf, MD, Technocraft.

The US now accounts for over onethird of the scaffolding revenue compared with 10% in FY16. In the June quarter, it reported 135% year-on-year jump in scaffolding EBIT (profit before interest and tax). EBIT margin nearly doubled to 21% due to improving product mix while sales were up 20%. In the current fiscal, it expects 15% volume growth in the business with higher profitability.

The drum closure products segment is also specialised business earning over 40% operating margin.With 35% share in the global market, Technocraft has several patents. It reported 21% profit growth on sales growth of 4% in the June quarter.The company expects 10% volume growth in this segment in FY17.

After reporting losses, the textile business, consisting of fabric and business, consisting of fabric and yarn, is expected to turn profitable this fiscal, according to the management. “In the yarn business, we have invested Rs 35 crore in the last 1 year to make it profitable,“ said Saraf.

Technocraft also has an engineering consulting business under a subsidiary Technosoft, which contributed over 10% to profit last fiscal.The company expects Rs 10-14 crore net profit from this business in FY17.

At CMP of Rs 389, the stock trades at around 7 times the annualised June quarter earnings plus expected profit from Technosoft after adjusting paid up shares to account for recent buyback.