Mumbai brokerage Vintage Inventory Broking says the inventory has potential to rally one other 20 per cent going forward, due to the prospects of two.eight instances earnings progress by FY23.
Calling Linde India a life-time progress alternative, the brokerage has initiated protection on the inventory with a ‘purchase’ ranking and a worth goal of Rs 2,170 based mostly on 45 instances Calendar 2023 earnings.
The brokerage mentioned most ‘high-growth’ high quality MNC engineering firms are buying and selling at a big premium to the broader market resulting from prime quality companies, progress alternative and superior administration high quality. “We consider Linde India falls in the identical class,” it mentioned.
Linde India is the most important industrial gasoline participant in India, each by way of income in addition to variety of installations. It enjoys a home market share of greater than 50 per cent. The corporate generates roughly 75 per cent of revenues from sale of commercial gases, whereas the remainder comes from the undertaking engineering and design (PED) phase.
The worldwide merger of Linde AG and Praxair in 2018 has led to the creation of the world’s largest industrial gasoline firm Linde Plc, which generated gross sales of $27 billion in 2020 with a market share of 32 per cent. Following that Linde India and Praxair India, built-in their companies in India in 2019.
“This wouldn’t have occurred at a greater time. Earlier than enterprise integration, Linde and Praxair commanded round 40-50 per cent market share within the industrial gases market. Put up-business integration, Linde India is anticipated to proceed dominating the business. The corporate is anticipating Rs 350 crore of synergy profit over the subsequent 3-Four years, largely by way of value financial savings and pricing self-discipline, which is able to probably enhance margins meaningfully,” Vintage mentioned.
Earlier than Vintage, Haitong Securities had on February 22 initiated protection of the inventory with an ‘outperform’ ranking. At the moment, the scrip was buying and selling at Rs 1,368 apiece. The inventory later hit a excessive of Rs 1,933.20 towards Haitong’s worth goal of Rs 1,821, earlier than coming off a bit.
The rising want for medical oxygen helped the inventory rally prior to now, as Linde India is amongst high suppliers to hospitals. However the enterprise doesn’t account for a big a part of Linde’s revenues. Additionally, there have been worth controls within the house since September 2020. That mentioned, the corporate’s robust presence in nitrogen provide and dry ice is seen as optimistic.
Haitong expects Linde India’s progress and profitability trajectory to enhance considerably versus its previous efficiency. “Moreover, the standard of income combine is about to enhance because the share of the non-cyclical sector is more likely to go up. A debt-free stability sheet and highly effective money era additional helps our thesis,” it mentioned.
The corporate’s Rs 1,821 goal worth on the inventory was based mostly on 23 instances EV/Ebitda, which was at 50 per cent premium to its 10 12 months common.
The present measurement of Indian industrial gasoline market is estimated at Rs 20,000 crore, out of which practically 40 per cent is captive. Vintage mentioned India’s industrial gasoline demand is about to surge exponentially, led by demand from metals, manufacturing and healthcare sectors.
“We count on Linde India to publish 20 per cent income CAGR over the subsequent three years on the again of demand from metal, manufacturing and healthcare sectors. The corporate reported an Ebitda margin of 25.5 per cent in CY20, regardless of a decrease income base. The enterprise integration with Praxair will convey value and pricing synergies which is able to additional improve profitability. We count on Ebitda margin to enhance to 29 per cent by CY23, leading to earnings rising by 2.eight instances by CY23,” Vintage mentioned.
International promoters held 75 per cent stake in Linde India as of December quarter shareholding information. Mutual funds held 10.73 per cent and FPIs 2.05 per cent.