Diversification is the only way the growth can be sustained. After a certain period of business growth, every company will face its stagnation point. This will ensure company management to think to diversify into other segments to increase the shareholder value as well as to tap into other opportunities provided by the market forces. Not every business is useful and sometimes if the synergies don’t match the company’s growth they should even let go of the business to be competitive in the market. In this article, we will look at the Fundamental Analysis of Tembo Global Industries which is into Textile Trading, further into engineering, and now into defence.
Company Overview Of Tembo Global Industries
Tembo Global Industries specializes in the assembly and production of metal components for fasteners, pipe support systems, HVAC, anchors, equipment, and anti-vibration systems. They even provide for a range of installations including commercial, industrial, OEM, and utility. The company also engages in the metal products trade that is related to its manufacturing operations. They are an export-driven enterprise which has earned them the distinction of a 2-Star Export House.
Tembo ventured into the EPC in 2023 (Engineering, Procurement, and Construction) securing orders from some prominent clients like L&T, Kalpataru, RDC-Maldives, and Tata Projects. Among all these businesses, Tembo has interests in trading which is related to the textile market. Tembo’s order book stood at more than Rs. 800 crore, more than 2 times the FY24 revenues.
Industry Overview and Outlook
The Indian textile and apparel market is expected to grow 10% yearly, reaching $350 billion by 2030. Industry experts expect exports to hit $100 billion. From April 2023 to January 2024, India exported $28.72 billion worth of textiles and apparel, including handicrafts.
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In FY24, India’s total textile exports, including handicrafts, reached $35.9 billion. This includes various products like readymade garments, cotton items, man-made fabrics, and carpets. Readymade garments alone accounted for $14.23 billion in exports. The US remains India’s biggest market, buying 32.7% of these exports.
As the company is in the engineering segment, there is further potential to be tapped. The engineering R&D sector might see $63 billion in investments by 2025. The Indian Construction Equipment Market, valued at $7.2 billion in fiscal year 2023, could grow 15% yearly for the next five years, according to CII estimates.
Engineering makes up about 25% of India’s goods exports and brings in a lot of foreign money. In fiscal year 2024, India exported $109.32 billion worth of engineering goods. June 2024 saw $27.68 billion in engineering exports.
December 2023 showed a 10.62% year-over-year increase in engineering exports, totaling $9.71 billion. India sends these goods mainly to the US, Europe, and UAE. The US, India’s top buyer, purchased $17.63 billion worth of engineering goods in fiscal year 2024. Experts think engineering exports could reach $200 billion by 2030.
Partnership with European Company
Recently, Tembo Global entered into an MoU with a European Company for a strategic partnership to establish a state-of-the-art arms and ammunition manufacturing facility in India. The agreement includes a 100% buyback of firearms produced by Tembo Global. This will help Tembo to set up the plant and significantly increase their expertise in the field as well as to secure a pipeline in this sector. Even operational support can significantly help the company to diversify its portfolio.
Financial Overview & Segments Of Tembo Global Industries
The company’s has reported its operational revenue of Rs. 432.07 crore in FY24, a 73% increase YoY from Rs. 249.81 crore in FY23. Net Profits in FY24 stood at Rs. 13.86 crore, an increase of 138% YoY from Rs. 5.82 crore in FY23. The Basic EPS has more than doubled in a year from Rs. 5.24/share to Rs. 12.39/share.
In the expenses part, the majority of the share goes towards trading goods cost which is around 76.57%, Material cost accounted for around 14.53%, Other expenses accounted for 6.21% and Employee cost was around 1.80% in FY24.
Ratio Analysis and business segments
In FY24, Net profit margin stood at 3.21% compared to 2.33% in FY23. The company’s ratio has improved YoY. The EBITDA Margin in FY24 stood at 4.40%, down from 5.40% in FY23. The trend suggests a downtrend from FY21’s 7.20%. This resonates with the operational efficiency related to its operational revenue.
In the return ratio, The RoE in FY24 was 19.30% improved from 13.76% in FY23. The RoCE has replicated RoE’s growth. The ratio in FY24 stood at 24.12% increase from 15.36% in FY23. The debt-to-equity ratio has decreased from 1.01 in FY24 to 0.75 in FY23. Over the period there is a reduction in the ratio which improves financial strength.
The decrease in the ratio despite an increase in borrowings was due to the issue of share warrants in FY24. The issue worth was around 13.71 crore with Rs. 230/warrant. The warrant holder can convert into shares by paying the remaining shares within 18 months from the issue. Out of 23.84 lakh share warrants, 18 lakh is given to a non-promoter and the remaining to the promoter group.
Looking at share warrants helps us to understand the beneficiaries who stand to gain out of the transaction based on the company events.
The revenue from trading of fabric textiles accounted for 76% and the remaining 24% from engineering manufacturing in FY24. Most of the revenue accounted for FY24 growth was due to textiles which rose 112% YoY. The engineering segment grew 13.40% YoY. The geographical mix suggests 86% is from domestic and 14% from exports.
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Future Plans Of Tembo Global Industries
- The company will expand its manufacturing capacity by 6 times to 1,05,000 MTPA by the end of FY25.
- They are looking to set up a new facility in Vasai with a capex of INR 75 Crores.
- The company plans to start manufacturing ERW Pipes with a capacity of 60,000 MTPA and planning to enter by Q1FY26.
- Tembo is looking to begin producing Strut Channels with a capacity of 30,000 MTPA.
- The company aims to set up an in-house manufacturing unit for yarn production after FY27.
- Tembo will establish ‘Tembo Defence Products P. Ltd to enter the defence sector.
- With the business shift, they are looking to increase revenue proposition from 70:30 textile and engineering products to 65:20:15 Engineering, Defence, and Textile by FY27.
- The company intends to explore opportunities to export defense products.
- Tembo will focus on shifting towards more margin-accretive business segments like EPC projects.
- The company plans to enhance its capabilities through integrated manufacturing technology and processes.
- Tembo aims to implement lean manufacturing principles to reduce waste and optimize resource utilization.
- They are looking to increase their order book pipeline & through bidding more than by Rs. 1,200 crore from the current more than Rs. 500 crore.
Key Metrics Of Tembo Global Industries
Here, we will look at some of the key metrics of Tembo Global Industries
Conclusion
As we near the end of the article on Fundamental Analysis of Tembo Global Industries, we have looked into the company, its financials, and its plans. The company is looking to increase its engineering segment steering from its core operational textile trading. Now, with the partnership of a European company, they are trying to enter defence as well.
The diversification might provide a new direction for the company. This news has impacted stock prices reaching new heights. What do you think about the company? How does the company foray into the sector? Let us know your thoughts on the company in the comments section below.
Written by Santhosh
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