Sectoral Tailwinds, Pedigree Management, and Debt Paring shaping Growth and Value
A true special situation and turnaround in every sense. FYI it's already expensive.
Past and Present
Back in 2015, the company was an authorized dealer of Caterpillar products. Noticing management issues and growth potential, an employee bought the CAT business from the public company and spun it off into a private corporation. Under his leadership, the new corporation grew to generate quadruple-digit crores in sales with solid profitability.
By 2024, the public company was in very bad shape, and the 80-year-old promoter had no legacy to leave behind. Realizing the cross-selling positive synergies, the former employee acquired the entire firm, revamping the board and its management. Today, its board includes an IAS officer, an army general, and a digital evolution expert, all working to restructure debt, reinvigorate teams, and strengthen their defence portfolio.
Infrastructure and Defense Expansion
As the oldest OEM for cranes in India (est. 1944), the company serves as a contract manufacturer for Manitowoc & Hyster cranes. With no Indian manufacturers for Manitowoc crawler cranes and a dominant 86% market share by Hyster in the stacker segment, the company is well-positioned to capture significant market changes due to geopolitical trade shifts, especially against Chinese competitors.
Defence Segment
The defence sector presents new opportunities for the company, underscored by a recent defence order book valued at ₹24,000 lakhs. Currently, the company acts as the backbone for 100% of India’s missile systems and is working with the relevant government agency to establish connections with Southeast Asian defence procurement agencies. Its future growth in the sector is supported by a policy that mandates "No global tenders up to ₹200 crores to be floated and no Chinese equipment may be allowed to work in Road projects, especially near borders."
Export Strategy
The export strategy is robust, driven by India's growing role as a global manufacturing hub. The CEO points to shifting global economics making India an attractive manufacturing base for Western markets. The company’s manufacturing plant is strategically positioned to be equidistant to a state capital, steel city, and two maritime ports, optimizing logistics while expanding its global footprint.
Financial and Operational Health
Despite the challenges of integrating a newly acquired company, there are signs of positive financial health. The company is in the process of clearing and restructuring its debts. With a recent rights issue, the company is poised for strategic growth without seeking further equity investment for the next 1-2 years.
Present Infrastructure
The company has two factories located in Eastern India, at Kamarhatty, Kolkata, and Kharagpur, West Bengal. The company has a network of four regional offices, 60 branches, and 20 product support centres in India to offer the required service back-up to support its product line.
Valuations
Given the price run-up over the last 2 years, plus the recent rights issue, the current price is considered relatively high in our opinion. We aim to make this a core position and invest in SIP mode. We category classify this as “buying expensive” but the growth prospects are too tempting to ignore.
Summary
Focused on sectors with great tailwinds such as in Infra & Defence
Takeover by extremely competent management with historical ties to the company
Existing infrastructure, relationships, and tech is a big moat
Equity funding and debt paring already in place
Strong leeway for growth given team, tech, infra, defence
High valuations prevail which will only grow if a turnaround is successful.
We want to emphasize that this communication should not be misconstrued as a recommendation, as we are not SEBI RIAs. Readers must conduct their due diligence and exercise caution. Therefore, we urge all readers to approach this opportunity with prudence and carefully consider the potential risks involved. While the prospects appear promising, it is essential to maintain a cautious approach and stay informed of the inherent dynamics of the industry.
About Us:
Govind Shorewala - Entrepreneur (Mining, Textiles) & Investor (Private & Public Markets) → Reach out at govind.shorewala@gmail.com
Aaroah Mittal - Early Stage VC → Reach out at aaroah.m@people-group.com
Raghav Ruia - Investment Banker, Student → Reach out at rpruia@usc.edu