In this episode of Midcap Mania, CNBC-TV18’s Nigel D’Souza talks about the demerged entity of Arvind Ltd, Anup Engineering, formerly known as Anveshan Heavy Engineering.

The market capitalisation of Anup Engineering, which manufactures critical process equipment for several core industries, is approximately Rs 490 crore.

Last year, shareholders of erstwhile Arvind got one equity share of Anup Engineering for every 27 shares held by them in the company. This exercise was undertaken to unlock the value for shareholders and so that each vertical could focus on profitable growth.

The shares, which made a debut at Rs 450 on March 1, 2019, is just five percent away from current levels. However, the promoter bought 2 percent to 40.74 percent between March 8 to March 12, 2019, which resulted in the stock shooting up all the way to Rs 684 on March 15, 2019.

But the stock corrected 30 percent from those highs as various funds would be more interested in holding the textile and branded retail business shares rather than engineering equipment manufacturing business.

Anup Engineering is a leading critical process engineering equipment manufacturer and its products include shell & tube heat exchangers, pressure vessels & reactor, tailor-made equipment and caters to industries like oil & gas, fertiliser, power & process/chemical and also has a global presence. The company has various marquee customers like Bechtel, Reliance Industries Ltd and Linde etc.

In the past five years, Anup engineering has delivered a strong performance with five-year revenue CAGR of 25 percent and five year EBITDA growth of 40 percent with margins holding at 20 percent plus. Its nine-month performance in this fiscal has also been stellar with topline growth of 26 percent and net profit surging by 61 percent.

It has been operating its business with zero and boosts of a ROCE (Return On Capital Employed) of 26 percent in FY18. The company targets Rs 1,000 crore revenues over the next five years, but the big question is will it come at the cost of margin?

How do the numbers stack up?

Assumption For FY20

Revenue: Rs 325 crore.

EBITDA: Rs 70 crore.

At 8x EV/EBITDA: Rs 554 crore.

At 10x EV/EBITDA: Rs 700 crore.

Anup Engineering has performed exceedingly well under its chief executive officer Rishi Roop Kapoor, who is a metallurgist from IIT Roorkee with Masters in Marketing Management. His past assignments include ESAB India and Godrej & Boyce.

The main risks the company faces is the slowdown in demand in key focus sectors, susceptible to volatile raw material prices and foreign exchange fluctuation.