Artson Engineering Ltd (AEL) is basically engaged in business of manufacturing tanks and terminals for refineries and petroleum companies. The company is a provider of Engineering, Procurement and Construction (EPC) contracts, involving end-to-end solutions, ranging from design and engineering, project management and construction, to quality assurance and guarantees.
The Company undertakes projects relating to construction of tank farms, petroleum and Oil and Gas depots and terminals, Power Plants, fuel handling systems, as well as mechanical equipment erection, civil structural works for industrial plants and composite contracts involving oil refinery turnaround/shut down. The Company's core competence lies in Oil and Gas Sector and Power Plants and it has successfully executed a number of projects for major domestic oil companies like Reliance and Essar.
Considering the profile of the company and the number of EPC projects being executed these days, one would expect Artson to be a company with a decent performance. However, to everyone's surprise it's a sick company registered with BIFR. Now, one can just not write it off on account of it being a sick entity. The company did turn sick some years ago after it failed to recover dues from Essar, however it has now staged a turnaround and that too with the help of none other than closely held Tata group company, Tata Projects Ltd (TPL).
Tata Projects Ltd. as mentioned earlier is a closely held company with annual revenue in excess of Rs 2000 crore. In terms of sanctioned scheme by BIFR, Tata Projects Limited (TPL), was admitted as the Strategic Investor and Co-promoter of the Company. TPL formally took an over 75 per cent stake in Artson Engineering Ltd for around Rs 33 crore in Jan 2008, and is now the sole promoter of the company.
When Tata Projects took over Artson, the sick company’s turnover was about Rs 15 crore. Today, the company has close to Rs 250-crore orders and has witnessed a quantum leap in its profitability and turnover for 9 months ending Dec'09. The turnover for 9 months ending Dec'09 has touched Rs 87 crore while the bottom line stands at Rs 3.45 crore, while for the corresponding period last year the turnover stood at just Rs 26 crore and a loss of Rs 2.67 crore. During FY 2008-09 the company received many orders aggregating to Rs 248 crores for construction of crude-oil storage tanks, intermediate and product storage tanks and associated facilities, and those are basically into execution phase.
The order book for Artson is expected to remain strong because its holding company has an order book in excess of Rs 5000 crore and since Artson acts as a sub-contractor to Tata projects ltd for many of its contracts. However, the company still cannot bag the contracts from PSUs. This is because Artson is still under BIFR, so bar on granting of contracts by PSUs is still in force.
Everything seems good for the company especially with Tata Projects Ltd taking over the control and also on account of huge investments being made in India in the Oil and gas sector, but my only concern is its valuations. The company is currently available at a market capitalization of Rs 177 crore and even while it has good order book both in terms of its own contracts and on the sub-contractor basis, but the market is looking too far forward while valuing it the current price. Waiting for an appropriate buying opportunity might be a prudent idea.
The Company undertakes projects relating to construction of tank farms, petroleum and Oil and Gas depots and terminals, Power Plants, fuel handling systems, as well as mechanical equipment erection, civil structural works for industrial plants and composite contracts involving oil refinery turnaround/shut down. The Company's core competence lies in Oil and Gas Sector and Power Plants and it has successfully executed a number of projects for major domestic oil companies like Reliance and Essar.
Considering the profile of the company and the number of EPC projects being executed these days, one would expect Artson to be a company with a decent performance. However, to everyone's surprise it's a sick company registered with BIFR. Now, one can just not write it off on account of it being a sick entity. The company did turn sick some years ago after it failed to recover dues from Essar, however it has now staged a turnaround and that too with the help of none other than closely held Tata group company, Tata Projects Ltd (TPL).
Tata Projects Ltd. as mentioned earlier is a closely held company with annual revenue in excess of Rs 2000 crore. In terms of sanctioned scheme by BIFR, Tata Projects Limited (TPL), was admitted as the Strategic Investor and Co-promoter of the Company. TPL formally took an over 75 per cent stake in Artson Engineering Ltd for around Rs 33 crore in Jan 2008, and is now the sole promoter of the company.
When Tata Projects took over Artson, the sick company’s turnover was about Rs 15 crore. Today, the company has close to Rs 250-crore orders and has witnessed a quantum leap in its profitability and turnover for 9 months ending Dec'09. The turnover for 9 months ending Dec'09 has touched Rs 87 crore while the bottom line stands at Rs 3.45 crore, while for the corresponding period last year the turnover stood at just Rs 26 crore and a loss of Rs 2.67 crore. During FY 2008-09 the company received many orders aggregating to Rs 248 crores for construction of crude-oil storage tanks, intermediate and product storage tanks and associated facilities, and those are basically into execution phase.
The order book for Artson is expected to remain strong because its holding company has an order book in excess of Rs 5000 crore and since Artson acts as a sub-contractor to Tata projects ltd for many of its contracts. However, the company still cannot bag the contracts from PSUs. This is because Artson is still under BIFR, so bar on granting of contracts by PSUs is still in force.
Everything seems good for the company especially with Tata Projects Ltd taking over the control and also on account of huge investments being made in India in the Oil and gas sector, but my only concern is its valuations. The company is currently available at a market capitalization of Rs 177 crore and even while it has good order book both in terms of its own contracts and on the sub-contractor basis, but the market is looking too far forward while valuing it the current price. Waiting for an appropriate buying opportunity might be a prudent idea.
Note: The stocks discussed at MPS thru blog postings are neither a part of “Business Insights” issue nor a “Penny Stocks” which we reco/publish for paid subscribers. These are just stock specific views by MPS team; one MUST do the due diligence before doing any investment based on our reco.
To contact the Lead Associate on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com
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