Rajoo Engineers is a leading manufacturer and exporter of plastic extrusion machines. Plastic extrusion machines use raw plastic, which is melted and fed into a machine to make it into a continuous profiles, such as plastic pipes, tubes, window frame, plastic frames and sheets. The raw plastic material (which could be pellette, granules or powder) is fed into the system from a hopper. The plastic material goes through a barrel, which is heated and melts the plastic. The melted plastic is then forced into a die, which gives the molten plastic a desired shape. On cooling, the plastic hardens and takes the shape desired.
Company manufactures extrusion plants for blow film extrusion, used in making shopping bags, tubing extrusions used in making PVC pipes, sheet extrusions used in making food packets and other packaging material. Most of these plants are used by small and medium size plastic manufacturers for making various plastic products for daily use.
Revenue Break Up:
Majority of Companys revenue comes from Thermo-plastic Extrusion machines which contributes 60.2% of the total revenue of the company, Post extrusion equipment generates about 19.9% of the total revenue of the company, parts and equipments contribute 17.18% of the revenue while other operating revenue contribute less than 1% of the total revenue of the company. A chart showing detailed revenue breakup of Rajoo Engineers is given below:
Rajoo engineers has seen decent growth in sales in the last 5 years. Company has posted 7.22% CAGR growth in sales from Rs. 90.83 crores in 2013 to Rs. 111.38 crores in 2017. Company has also started exporting machines to countries like Thailand, Pakistan, Bangladesh and Vietnam. Increase in exports will boost the revenues of the company in the future. In the domestic market, packaging sector is the major consumer of plastic as it is widely used in various purposes.
Raju Engineers has seen a six-fold growth in net profit in the past 5 years, a CAGR growth of 30.56%. The profits grew from Rs. 1.69 crores in 2013 to Rs. 6.41 crores in 2017. Because of shift of production base from US and Europe to India and China, Rajoo Engineers will be the biggest beneficiary in the future,as such a shift provides opportunity to domestic market.
Basic EPS is a measure of how much profit a company is making on per share basis. In other words, it’s a measure of how much money each share of the company will receive if all the profits earned during the year is distributed to its shareholders.
Rajoo Engineers has posted good growth in Basic EPS, form Rs. 0.46 per share in 2013, to Rs. 1.1 per share in 2017. The projected growth in plastic processing machinery to be around 10.5%, as company improves its market share, the growth in EPS will improve in the coming future.
Net Profit Margin:
Net Profit margin is the key ratio which is used to compare profitability of two or more companies working in the same sector. Net profit margin is a measure of how much percentage of total sales remains with the company as profit after all the expenses are paid. ?
Rajoo Engineers have been earning higher profit margins every year. While in 2013, the Net Profit Margins of Rajoo Engineers was 1.86%, margins improved significantly and Net Profit Margins of Rajoo Engineers went up to 5.75% in 2017.
ROCE or Return on Capital Employed, is a measure of how efficiently the capital of a company is being used to generate profit. ROCE is expressed in percentage terms. A company with ROCE of 20% means out of every 100 rupees employed as capital, company is able to make a return of rupees 20.
ROCE of Rajoo Engineers has also see significant improvement in the past 5 years from 4.88% ?in 2013 to 14.435 in 2017. With rise in net profit margins and rising demand for plastic products in the future, the ROCE of the company is going to improve.
Debt to Equity:
Debt to equity ratio tells us how much of the total financing of the company comes from creditors (those who lend money at an interest) and investors (those who invest in the shares of a company). Higher debt to equity ratios is an indication that majority of company is financed by loans and other debt (such as debentures and bonds).
Company has significantly reduced its debt in the past 5 years, from debt that was 4 times the equity, Rajoo engineers has reduced its debt to only 16% of its equity. In the next one or two years, Rajoo Engineers will be a completely debt free company.
Dividend per share is the amount of dividends a shareholder receives on per share basis. Dividend per share includes all the interim dividends paid during the financial year as well as the final dividend paid at the end of the financial year. Dividend per share is calculated by dividing total dividends paid during the year from total number of shares outstanding.
Although Rajoo Engineers is a small cap stock and requires capital to grow its business, the dividend history of the company has still been impressive. Rajoo Engineers paid a dividend of Rs. 0.14 per share in 2013, which grew up to Rs.0.25 per share in 2017.
Future Expansion Plans of Rajoo Engineers:
Rajoo Engineers has started exporting its machine to other emerging markets such as Thailand, Malaysia, Vietnam, Bangladesh and Sri lanka. This will boost companys profits in the coming future. Company has also entered in collaboration with Hosokawa Alpine, company formed out of joint venture between a Japanese and a German company. The company will help Rajoo Engineers in developing better technological understanding and provide ?world class blow films system.
Since packaging sector is one of the major consumers of plastic, company is looking to cater to this sector. However, demand in sectors such as construction, automobile, is growing at 13% per annum, and the company is working towards developing better products to tap such markets.
SWOT analysis of Rajoo Engineers:
Company is among few players in organized segment engaged in manufacturing of plastic extrusion machines.
A collaboration with Hosokawa Alpine will improve product quality, which will help in developing better, more economical products for customers while improving the quality of service.
Company has started shipping its products overseas to other emerging markets.
Business of the company is highly dependent on the demand for manufacturing of plastic products, the machines manufactured by Rajoo Engineers is used mostly by unorganized players. Since most unorganized players are small enterprises and vulnerable to business environment changes, any negative news in the plastics sector will deeply impact the sales of the plastic extrusion machines.
Shift of production base from Europe and US to emerging markets like China and India provides better opportunity for the company.
Rising demand from packaging industry as well as from other industries such as automobile, construction, agriculture industries, and widespread use of plastic as a substitute for many other material is another great opportunity for Rajoo Engineers.
Projected growth of plastic extrusion machines is 10.3%, which is a high growth industry, which means the industry is growing at a faster rate.
Packaging sector is one of the biggest consumers of plastic. Rising consumption in India leads to higher demand for packaging needs, which leads to faster growth in the plastics sector.
Since the plastic sector has deep impact on the environment, the sector operates under strict regulations set by the Governments. Any change in Government policies may impact the business of the company.
Should I invest in Rajoo Engineers at current levels?
Rajoo Engineers has strong fundamentals and a good business that has huge growth potential. The Company is trading at a P/E of 35 while the industry P/E is at 34.42, which makes Rajoo engineers fairly valued at current levels. The stock has given a good rally in the past few months. At these levels, I would recommend investors to invest a small amount in the stock for tracking and add some more if there is a dip in price. Looking at the past growth in companys earnings and future prospects of the sector, I believe the stock price will reach Rs. 70-100 in the next 2-3 years.