Elantas Beck India – Leader in Liquid Insulation Industry
Elantas Beck India (Elantas) is the Indian market leader in liquid insulation segment used in electrical equipments like motors, transformers, generators etc. Company is a part of global specialty chemicals leader ALTANA Group and it doesn’t have any direct competitor in Rs.600cr+ market in India. Elantas enjoys market leadership in both primary and secondary insulation market with over 35% market share.
Company is engaged in the business of manufacturing and marketing of Electrical Insulation Systems and Electronic & Engineering Materials having applications in Electrical Equipment, Power and Automotive Sectors. Incorporated in 1956 as Dr. Beck & Company India Ltd., ELANTAS is present in India for 60+years. It was acquired by world’s leading company in Liquid Electrical Insulation ELANTAS Gmbh, part of global specialty chemicals leader ALTANA Group, in 2003. Its manufacturing plants located at Pimpri, Pune in Maharashtra and Ankleshwar in Gujarat with combined capacity of 24000 MT.
Liquid Insulation – Small but critical part of the equipment
Liquid insulation forms a small part of the total equipment cost (<1-2%); however, it performs a critical function. This helps the company in commanding tangible pricing power which helped in improving margins. It has almost doubled its margin to 21% over FY12-17, taking advantage of falling crude prices and premium pricing. This has helped in registering 6% CAGR in revenue and 16% CAGR in PAT over the same period.
User industries to drive demand going forward:
It derives demand from several industries including electronic equipment’s, power segment and automotive component Industries which are expected to register 10%+ CAGR in demand in the coming years. Elantas with strong R&D support from its global parents and diversified product offerings is likely to benefit from such buoyant demand.
It is a debt free company which generates robust free cash flows. Its robust business model also helps in limiting its working capital cycle to 65-70 days and with minimal capex requirements. Company has superior return ratios of RoCE-30%, and RoE-20% thus commands a premium valuations. Company is consistently generating positive cash flows which 5yr average stood at Rs.39cr. This has led to liquid investments crossing Rs.128cr in H1FY18. The company shares this wealth in every 2-3 years with investors in the form of rich dividends. We expect the company to distribute cash to shareholders in the form of hefty dividends.
Elantas is likely to post subdued FY18 mainly marred by GST woes and poor offtake from customer side. The demand is expected to pick up from FY18 onwards which will boost the earnings CAGR to 17% over FY18-20. Current valuations at 22.4x FY19 EPS, looks attractive considering its growth potential and high return ratios. Investors can buy the stock at current levels for a period of two years.