Overview:

Lloyds Engineering Works Ltd (LEWL), established in 1974, has positioned itself as a key player in the development, production, and deployment of robust equipment, machinery, and systems tailored for various sectors, including the Hydrocarbon Sector, Oil & Gas, Steel Plants, Power Plants, Nuclear Plant Boilers, and comprehensive Turnkey Projects.

Financial Strength and Strategic Investments:

With a resilient INR 921 crore order book, equivalent to 3 times FY23 sales, LEWL is strategically positioned for substantial growth, especially in Marine and Civil projects. This foresight promises heightened revenue and profit margins. The company is solidifying its financial position as a net cash entity by strategically investing in capacity enhancement.

Market Positioning and Growth Strategy:

LEWL is poised to thrive in the infrastructure and capex sector, aligning with the anticipated surge in government spending. The company’s strategic technological collaborations with industry leaders like The Material Works, Ltd. (TMW), Bhabha Atomic Research Centre (BARC), and TB Global Technologies Ltd (TBG) underscore its commitment to innovation and diversification, ensuring a competitive edge in the evolving market landscape.

Equity Issuance and Future Outlook:

LEWL is set to issue 6.34 crore equity shares, raising INR 99 crore at a price of INR 15.5 per share, with the funds earmarked for working capital needs. The company anticipates impressive revenue growth at a CAGR of 47% to INR 996 crore, driven by higher order inflow from marine, steel, and special civil engineering projects. The strategic capacity boost and positioning in the infrastructure and capex sector are expected to contribute to this robust growth.

Financial Projections:

LEWL’s EBITDA and PAT are anticipated to grow at a CAGR of 59%/66% to INR 209/168 crore, respectively. EBITDA and PAT margins are expected to enhance by 430/500 bps to 21%/16.8%, respectively. Subsequently, ROE and ROCE are projected to enhance by 610/750 bps to 24.9%/22.9%, respectively.

Investment Recommendation:

Initiating coverage on LEWL at the current market price of INR 44 per share (28.3X FY26 P/E) with a price target of INR 71 (47X FY26 P/E) per share, representing an upside potential of 61.4% in the next 24 months. Ventura Securities recommended this stock at Rs. 44 for a target of 71 in 24 months for a potential growth of approx 61%.

Industry Presence and Order Book Expansion:

LEWL operates across diverse industries, supplying critical equipment and services to sectors like refinery, oil & gas, power, steel, mining, and nuclear projects. The company’s order book, starting at INR 377 crore in FY23, securing INR 608 crore in fresh orders, and executing INR 312 crore worth of projects, reflects substantial growth. Closing the year with an order book of INR 683 crore, roughly 2.2 times the FY23 revenue, indicates strong revenue visibility.

Key Risks:

1. Intense Competition: LEWL faces intense competition from domestic and international players in the special-purpose machinery manufacturing industry.
2. Raw Material Price Fluctuations: The company is exposed to fluctuations in the prices of raw materials, such as steel and aluminum, which could impact profit margins.
3. Execution Challenges: With a large order book and ambitious growth plans, successful execution is crucial. Delays, cost overruns, or execution failures can significantly impact financial performance and reputation.

In conclusion, Lloyds Engineering Works Ltd showcases a robust growth trajectory, backed by strategic investments, industry collaborations, and a strong order book. While navigating competitive challenges and market dynamics, the company’s strategic vision positions it as a promising player in India’s engineering sector. Investors are advised to consider the potential upside and associated risks before making investment decisions.

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