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Ingersoll: Troubled times

Feb 7, 2001

Ingersoll Rand India Limited (Ingersoll) is at the crossroads today. The company is one of Indiaís leading engineering companies. Its product portfolio includes compressors (centrifugal, reciprocating, screw etc.), mining and construction equipment (blasthole drills, compactors etc) and production equipment (pumps). Besides manufacturing, the company also acts as an agent of its parent company and earns commission for the products marketed by the parent company in India.

(Rs m)3QFY003QFY01Change9m FY009m FY01Change
Sales Turnover966858-11.2%2,8802,296-20.3%
Other Income424711.9%10915037.6%
Total expenditure7877920.6%2,3562,108-10.5%
Operating Profit (EBDIT)17966-63.1%524188-64.1%
Operating Profit Margin (%)18.5%7.7% 18.2%8.2% 
Interest 00-10-
Profit before Tax20798-52.7%584294-49.7%
Profit after Tax/(Loss)13849-64.5%395218-44.8%
Net profit margin (%)14.3%5.7% 13.7%9.5% 
No. of Shares (eoy) (m)31.631.6 31.631.6 
Earnings per share*   16.79.2 
Current P/e ratio    18.0 

The company has been struggling to maintain its topline over the last few years. The slowdown in the Indian economy had an obvious affect on the bottomline of the company. Over the last three years, the companyís growth has been stagnant. In fact, conditions were so bad in FY00 that Ingersollís operating margins declined by 290 basis points. Flat demand growth in markets like the US and Europe also affected exports in FY98 and FY99. However, the company bounced back in FY00 with a 215% jump in exports over FY99. The company would have been under tremendous pressure had it not been for this export jump. In fact, exports were almost a third of its FY00 turnover.

FY01 (till date) has been even worse. The first nine months of FY01 saw Ingersoll's bottomline squeezed by 45%. The company's topline too saw a 20% decline. The company's operating margins have declined by 100 basis points YoY.

Ingersollís main competitors are Cummins India, Revathi CP Tools and Atlas Copco in the higher range of compressors. In the lower end, the company mainly competes with Elgi compressors and the unorganised sector.

The company's declining fortunes have had a negative impact on its valuations too. The stock trades at 18 times its annualised nine month FY01 earnings. If the company is not able to arrest the fall in its performance, Ingersoll's valuations may take a hit further.

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