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Ingersoll: Tough times ahead

Oct 3, 2000

Ingersoll Rand's (IRL) is one of Indiaís leading engineering companies. IRLís 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. Its commission income has also shown a significant rise over the last 8 years.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 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 FY00 turnover.

Flat growth
(Rs m)FY98FY99FY00
Gross profit793708666
Net profit585546568
Operating margin19.0%19.0%16.1%
Net profit margin14.0%14.6%13.7%
Ingersollís first quarter ended June 30, 2000 results indicate that FY01 will be another tough year for the company. The companyís realisations were very low compared to what it has been earning. Its operating margins were around 11% in 1QFY01, compared to around 16-20% it earns normally. As the effect of the rising oil prices filter in, the companyís bottomline and margins are likely to take a further hit.

As a result the company, like many of its compatriots in the engineering sector has been trading near its 52 week low. At a price of Rs 153 currently, the company trades at a P/e multiple of 8.5 times its FY00 earnings.

In the long term however, the setup of power plants, refineries and other infrastructure projects indicates a huge potential for the business of the company.

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