Background: In the rush for Gold during the great California gold rush of 1850s, the real winners were not the gold diggers but the people who made shovel for these gold diggers. Therefore, smart investors don’t dig for gold (all are doing that), but they are selling shovels. Similarly, in today’s plastic led boom, the real winners would be those innovative companies who are creating machines to cater to this industry. Plastics represents one of the ubiquitous raw materials that finds use in a wide gamut of industries ranging from packaging, agriculture, infrastructure, construction, automotive, industrial manufacturing equipment, to mechanical engineering. The global plastics industry is witnessing continuous shift of production bases to low-cost countries specifically india. This coupled with increasing foreign investments, and rise in the number of new manufacturing establishments are presenting Asia-Pacific as a prime driver of growth in the plastics industry. Packaging sector is one of the major consumers of plastics followed by agriculture and infrastructure. Apart from being used as a substitute for traditional materials, plastic packaging is being increasingly used in personal care products, packaged foods and beverages markets.
Investment in plastics processing sector, specifically in extrusion is around Rs. 29,600 crores till date and further investment is expected as under : ( Source CPMA)
– 2015-16 – Rs. 3346 crores
– 2016-17 – Rs. 4028 crores
With its strong engineering skills and language advantage, similar to the IT and automobile industry, India has become an outsourcing hub for supply of parts and assemblies to the developed economies. Rajoo is taking advantage of this opportunity by supplying to manufacturers in Europe, Russia, USA and francophone countries.
The Company: Rajoo Engineers is one of “the” most innovative companies in its space. Rajoo is in the capital goods sector, manufacturing plastic processing machines specifically, extrusion and post extrusion machines for producing films, sheets and various thermoformed and vacuum formed products. With the growing demand for plastic newer players are coming and existing one’s are ramping up the capacity. Plus given the nature of plastic industry, the technology up gradation also has to be done relatively frequently. The plastic industry is a relatively low margin industry and therefore, there’s always demand for faster, efficient (low energy consumption) and cutting edge (i.e. one with higher level of automation) machinery.
Rajoo engineers has been obsessed with creating technically superior products. Whenever they have found a roadblock in terms of R&D Rajoo has managed to forge excellent partnerships with World leading foreign firms like Bausano Holding SRL Itlay, Hosokawa Alpine of Germany and Commodore of USA. These partnerships have delivered the goods for Rajoo and coupled with Rajoo’s excellent execution capabilities the company has managed to thrash its rivals and have grown quite strongly whereas its rivals have been struggling. It has been able to successfully absorb and indigenize the technology from its foreign partners and that has ensured that Rajoo’s tradition of delivering highly cost effective, cutting edge products in record delivery times is continued. No wonder that when its more mighty peers have not grown at all in last 4-5 yrs, Rajoo’s turnover has more than doubled to over 101cr in last five years and the profits have improved significantly which is in stark contrast to its rivals where their turnover or profits have hardly changed. Rajoo Engineers has a wide range of products like, Monolayer and Multilayer brown films, downward extrusion Brown Film lines, Thermoforming & PS Foam Vacuum Forming Machines, PS/PE Foam Extrusion Lines, Twin Screw PVC Pipe Plant, PP Nonwoven Fabric Making Machines , Drip Irrigation Pipe Plant For Dripper Flat And Round Dripper and these products find application in Flexible packaging, Agriculture, Infrastructure, Automobile, White Goods, Stationary, Technical Textile and Healthcare.
Rajoo The Leader:
- India’s biggest and one of the world’s largest suppliers of ‘end-to-end thermoforming solutions’.
- Market leader in blown film lines, sheet lines and thermoformers in the Indian sub-continent
- Repeat business of around 60% is a clear indication of the satisfaction levels of existing customers. Almost half is export repeat business and is from US, Germany, UK that standout as acceptance by the most stringent and developed markets of the world.
- Rajoo Has the widest range of mono and multilayer blown film lines
- The first Indian company to introduce foamed sheet line and thermoformers in the country.
- Bausano&Figli, Italy (www.bausano.it)- Rajoo entered into a Joint Venture with Bausano&Figli, Italy along which it formed a JV caled Rajoo Bausano Extrusion Pvt. Ltd. Rajoo successfully capitalized the technology for effective production of PVC pipes and profiles in India.
- Commodore LLC., USA (www.commodoresolutions.com)- With the objective of being the first Indian company to introduce foamed sheet line and thermoformers inn the country, Rajoo entered into a technical collaboration with the leading world player Commodore LLC. Commodore brought its experience of more than 25 years in extrusion technology, especially for PS foam extrusion and thermoforming.
- Hosokawa Alpine AG, Germany (www.alpinehosokawa.com) – A technical collaboration with HOSOKAWA ALPINE of Germany (one of the most reputed companies globally in blown film technology) was formed to produce ‘hybrid’ solutions with the Alpine technology at the Rajoo’s manufacturing site at Rajkot and would serve the markets in India and Anglophone Africa.
Valuations: Rajoo, has a track record of very strong consistent dividend payout. Contrary to extreme slowdown in the industry the Rajoo, has shown strong growth and is expected the increase the pace of growth in future. No wonder the promoters have increased their holding from 48.86% to 67.86% in last four years. The company also has a very healthy interest coverage ratio of above 10%. The stock is available at very reasonable low double digit multiple whereas its growth-less peers are quoting at much higher pe.The stock in H1 FY15 has given a 31% increase in sales YoY and profits have increased 217% for the same period. What is phenomenal is that their strongest quarter of the year is yet to come. One of the reasons for the stock to be ignored by the markets is that it is small cap along with the fact that earlier it was trading below rs 10 (just like vidhi), but what people “fortunately” (for investors like us) ignore is that it’s a FV 1 stock. Hence, thankfully, the stock is undiscovered with no big investors as yet.
Technicals: The stock has given a multi-year breakout and inspite of all the market mayhem, it made a new multi-year high very recently. Stock is looking supremely bullish.
If somebody is betting on capital goods industry and infrastructure revival, this is one best proxy for it.
Kindly go through this link to realize, understand and appreciate the strengths of this wonderful company -> http://www.rajoo.com/media&press.html
Disclaimer: No holding in the stock, but it is safe to assume that I may or may not invest in future. Also, the above stock view is my personal view in individual capacity. For rest, please look at the About page.