The Hindu Business Line : Alfa Laval: Buy

INVESTORS can consider fresh exposures in Alfa Laval at Rs 233. At the current market price, the stock is trading at 8.5 times its trailing 12-month earning per share. The stock appears attractive at this price considering the good order book position and rising export prospects.

Business: Alfa Laval manufactures machinery and equipment for use in vegetable oil refining, distillery, bio-pharma, power and ethanol blending. It also acts as a manufacturing base for certain products such as separators and decanters for the parent company and other group companies.

Growth prospects: Its growth prospects hinge primarily on exports. This depends on two factors — higher outsourcing by the parent and penetration into newer non-group overseas markets for projects. Both appear to be happening for Alfa Laval. The vegetable oil, distillery and bio-tech businesses hold good prospects abroad, especially Asia, Africa and South America. Moreover, the parent company is contemplating outsourcing more products from Indian units. These factors could keep the growth ticking. Total exports as well as to group companies rose the previous year. Contribution of exports to the total turnover rose from 22 per cent in 2001 to 28 per cent in December 2002. Within exports, sales and services to group companies have risen 22.6 per cent in the same period.

Strong order backlog: As on April 30, Alfa Laval had on hand orders worth Rs 177.8 crore, up 40 per cent over the previous year. Orders on hand constitute 58 per cent of the total turnover of the year ended December 2002. Export orders on hand total Rs 50 crore, including a Rs 23-crore deal from Vietnam. The company expects exports to touch Rs 100 crore this year.

This reiterates its commitment to improve its exports to non-group entities. Among the two divisions, Equipment and Process Technology, the latter is expected to clock more volumes this year.

Performance: Alfa Laval clocked 24 per cent topline growth and 49 per cent rise in bottomline for the first quarter ended March 2003.

Operating margins expanded by over four percentage points to 24.8 per cent. Given the impressive performance for the first quarter, the orders on hand and the export prospects, it may not be difficult for the company to sustain the current growth.

Given the growth prospects, the strong fundamentals, the dividend history and the ability to generate sufficient cash, the Alfa Laval stock appears undervalued at present.

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