The Hindu Business Line : Batliboi: Buy

The stock of Batliboi can be accumulated at about Rs 150, as growth prospects appear promising. The stock trades at 15 times its expected FY06 per share earnings and is attractively valued from a longer-term perspective. The sharp pick up in the offtake of textile machinery and the turnaround of the machine tool division are expected to improve earnings performance of the company over the next few quarters. Buy with a one-to-two year perspective.

Batliboi is a leader in textile humidification systems, which are used to maintain moisture during the spinning process. Since the abolition of the quota regime last year, the textile industry is on a capacity expansion spree with investments pouring into the spinning segment. As spindlage capacity expands in the country, the demand for these systems will continue to rise over the next couple of years.

As the leading player with a market share of over 35 per cent, Batliboi could benefit from the upward capex cycle in the textile industry. Revenues of this segment rose by 38 per cent in the nine-months ended December 2005 and it is the sole contributor to profits. The textile machinery division also has a trading division that imports a range of machinery that caters to the entire gamut of user requirements from spinning to garment making.

This trading activity is beneficial, as Batliboi's own products act as a neat complement and provide buyers a one-stop shop.

With the pick up in industrial capex, orders for machine tools have also exhibited robust growth. Batliboi's machine tool division recorded a 46 per cent growth in the first nine months of FY06 and the division has turned around this year. We expect this division to start contributing to the earnings growth from FY 07.

The company also provides air conditioning and refrigeration solutions. In this segment, Batliboi is a marginal player as it is dominated by the likes of Voltas or Blue Star. Though prospects appear bright, the business is low on margins and highly competitive. Hence, we have discounted this division's performance in our earnings estimates.

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