Company Name – Jash Engineering Limited (Jash)
Current Share Price – INR 860 (February 7, 2023)
Market Cap – INR 1,032 cr
1. What is interesting about the stock?
When you take a shower, wash your utensils, or flush the toilet, have you ever wondered what happens to the wastewater? Cities near water bodies would usually dump the waste into them, and that led to massive environmental pollution problems. In the last couple of decades, a lot was done by the Government to clean up our lakes and rivers like Ganga and Yamuna. This led to the setting up of wastewater treatment plants across cities and towns.
Similarly, potable water needs to be transported some distance for it to reach our houses. This needs infrastructure for flow management to ensure a continuous supply at the right parameters.
Jash Engineering Limited (“Jash”) is an engineering company, incorporated in 1973, offering a wide range of flow control, screening, pumping, and treatment equipment for water, wastewater management, bulk solids handling valves for industry, hydro turbines for renewable energy generation and equipment for re-use of wastewater for diverse industries like municipalities, sewerage boards, companies in power, steel, cement, paper & pulp, petrochemicals, chemical and fertilizers, and other process plants. It has acquired companies in Europe and USA to acquire new technology and well-established brands, and aggressively enter new geographies.
Revenue break-up in FY22 was:
Water control gates – 50%
Screening equipment – 25%
Valves – 14%
Hydropower & Pumping, Process Equipment, and others - 11%
Product usage in FY22 was:
Sector outlook: The water/wastewater business is an essential infrastructure sub-sector and has been poised for growth in India. However, this being a State subject, the effort has been pocket-specific and intermittent.
In the global arena, developed countries need to invest in improving/modernizing their water infrastructure and therefore, there is consistent growth in the sector (industry growth of 2-3% across most regions) while emerging markets need to support large-scale urbanization and hence, build infrastructure (annual growth between 4-7%). Correspondingly the global growth in the equipment business (~USD 50 billion in 2021) is about 5-7% annually.
Diversified product basket and extensive product approvals: The Company has a strong product profile and product approvals from the major municipal corporation, sewerage boards, consultants, and large EPC players across 30+ countries. Backed by manufacturing facilities: The Company has 4 well-integrated (design to final product) ISO 9001:2008 / ISO 14001:2015 / OHSAS ISO 45000:2018 certified manufacturing facilities in Indore, MP, and a finishing facility in Orange, MA, USA for near-shore finishing to serve American customers.
Strong Order Book: The Company has an outstanding order book of INR 720 cr as of December 31, 2022, of which about one-third is for Indian markets, 37% for the USA, and the remaining 30% for the other international markets.
Presence in USA and Europe with strong brands: Through the acquisition of Mahr Maschinenbau (a European brand well-established worldwide in screens) and Rodney Hunt (a 180-year-old US brand in the gates and valves business), Jash has acquired strong brands that will allow it to aggressively grow the exports market, and currently exports to 45+ countries. Jash USA has retained the marketing team and a small fabrication unit in Rodney Hunt, to enable it to project itself as a US company to its clients. The onshore team is backed by engineering design and manufacturing done out of India, thereby leveraging the low-cost manufacturing capabilities offshore.
Strong management: The Promoter, Pratik Patel is a third-generation businessman, Jash was founded by his grandfather, Jashbhai Patel, and has spent nearly 30 years in the business. He has built a second line of management by hiring people from different industrial MNCs in India, and supplementing the teams that came with the acquisitions, with leadership hires internationally.
Strong corporate governance: The Company has been using one of the Big 5 auditors (Grant Thornton) as its auditor since 2012 which rotated out, and Deloitte is its current auditor. It has also constituted a strong independent board to oversee the Company, which is rare in companies of this size of operations.
2. Key Historical Financials
Company revenue and profit have been growing 18% and 27% on a CAGR basis respectively in the last 5 years. Management expects to deliver INR 430 cr revenue in FY23
EBITDA margin is stable around 13-17% with EBITDA margin being 18% in Q3FY23 due to lower raw material prices
The current order book is 1.8x of TTM revenues
The working capital level in the business is quite high leading to a poor cash conversion ratio (CFO/EBITDA)
3. What is my view on company valuation?
The Company has traditionally traded at a median P/E level of 13x, but on a TTM basis is currently trading at 29x, which is quite high for the Company. However, a growth rate of ~20% over 5 years and a strong order book make it an attractive bet. Also, this Company remains an acquisition target by international players operating in this field because of its manufacturing facilities and prequalification and approvals that it has gained over the years. This is likely to keep its P/E multiples elevated for some time.
4. What are the risks to the investment analysis?
Risks to the analysis are:
Company is a product supplier and is directly dependent on the growth of the water and wastewater infrastructure across the world and any slowdown makes it difficult to maintain growth and profitability
Jash custom-manufactures products for its clients. Therefore, its working capital and margins are also sensitive to any delay/impact on project management/liquidity at the customers’ or the contractors’ end
About the Author
I have over 18 years of experience in private equity and public markets. I am an engineer by background and MBA from a premier institute in India.
I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.
I have used publicly available information while writing this article.