Website : http://www.geiind.com/
CMP : 131.50 (closing price, 18.06.2010)
EPS (FY10) : ~ Rs 10
In his seminal work "Common Stocks, Uncommon Profits", Phillip A. Fisher laid down the top criteria for stock selection as being whether the company in question had the products or services with enough potential to make possible a sizeable increase in sales for several years to come.
GEI Industrial Systems (GEI) is one such firm blessed with precisely the sort of products that have a ready & increasing market in years to come.
The company’s main products are Air Cooled Heat Condensers & Heat exchangers, primarily for the Power and Oil & Gas sectors.
These air cooled products are fast replacing water cooled products, owing to the fact that availability of sufficient water for industrial users is becoming a big problem in India, as a burgeoning population competes with industries for a water pool that is not enough to supply both, and is not getting augmented quickly either.
This situation is unlikely to get better, on the contrary things could get even worse.
Secondly, with the mammoth plans for power generation already announced – and the power-starved country certainly needs that - the main market the company caters too is also staring at huge growth. Oil & Gas sector is also growing at a good pace.
So Water Scarcity + Power Scarcity = Good Times for the Air-Cooled Condenser & Heat Exchanger Industry.
Which brings us to the 2nd important consideration : Does GEI enjoy any competitive advantage - say market leadership / technology leadership / Cost leadership etc – that will give near certainty that the company will enjoy the fruits of the superb opportunity outlined above ?
In fact there is : GEI is a market & technology leader in it’s field, with a 40-50% share of the Air Cooled Heat Condensers & Heat exchangers market in India.
So how fast is growth likely to scale up ? Well, GEI is expanding capacity at a frenetic pace. A leading business magazine recently quoted the management as projecting to double turnover (~250 Cr currently) in 2 years time, and aiming at quadrupling it by 2015, which would make GEI a leading global player. Currently the company has an order book of over 400 Cr, giving visibility for the next 15-18 months.
Recommendation :
Given the humungous market potential & the market leadership enjoyed by GEI, the only thing that remains to be decided is what would be a decent entry price. After all, one does not want to enter a great business at an atrocious price, thus shooting oneself in the foot.
The author believes that a small entry at Rs 130 or below, followed by averaging at declines is the right way to go about entering & accumulating this stock, strictly for a 3-5 year holding period.
Author : Bosco Menezes
Recommendation Date : 20.06.2010
Disclaimer/Disclosure :
At the time of writing this article the author has a position in the stock covered by this report. The author or any of his dependent family members may make purchases or sales of the securities mentioned in the report while the report is in circulation. Readers/recipients of this report are strongly advised to do their strict due diligence, and should be aware that the value of investments can go down as well as up. The author shall not be liable for any direct or indirect losses arising from the use of the contents of this report, and readers are therefore cautioned to use the information contained herein at their own risk. In fact, readers would do well to seek the advice of a qualified independent advisor. The author certifies that all of the views expressed in this report accurately reflect his personal views about the subject company at the time of writing this report. Feedback / brickbats may be hurled at the author at boscom@gmail.com .
