Fortune Scrip     

Published: December 31, 2023
Updated: December 31, 2023

PTC Industries

Poised to emerge a behemoth in aerospace, defence

This fortnight, we have picked a unique company as the Fortune Scrip. Though the company has been in existence for the last 60 years, its turnover has reached just Rs 200 crore, on which it has earned an operating profit of Rs 79 crore and a net profit of just Rs 26 crore. The company has not been paying any dividend and there is no question of a bonus issue. Inspite of this, the company's share price has skyrocketed to Rs 6000!!

The company is Lucknow (UP)-headquartered PTC Industries, which manufactures castings, machined components and fabricated parts for critical and super-critical equipment. It exports around 75 per cent of its products overseas and its global customers include Rolls Royce, Siemens, General Electric (GE), Alstom, Metso and Emerson. A special characteristic of the company is that it has always differentiated itself from its peers and has remained committed to research and innovation since inception. Its innovative, research-oriented work in the manufacture of critical and super- critical metal components has ushered in an era of disruptive innovation in this industry.

PTC's wide range of materials includes titanium alloys, alloy steel, stainless steel, duplex and super duplex stainless steel, crip-resistant steel, heat-resistant steel, nickel-based alloys and cobaltbased alloys. The company has expanded its product portfolio by introducing new trademarked technologies like Rapid Cast TM, Print Cast TM, Print Cast TM, Forge Cast TM, Powder forge TM, and Tickast TM. With the help of these technologies, the company produces a variety of products such as pumps, valves, propulsion systems and flow control equipment.

The Department of Scienti|c and Industrial Research (DSIR), Ministry of Science and Technology have awarded numerous accolades to PTC for its pioneering research work in the field of metal components. Further, PTC has also undertaken various technology focused research programs under the aegis of DSIR. Such projects are monitored regularly by the eminent people in the industry hailing from top institutes and research organisations who also give their valuable inputs for further advancement of technology.

Over the years, PTC's research and development eyorts have gained cognizance and its in-house R&D Laboratory is a recognized R&D Lab by the Department of Science &Technology (DST), Government of India.

The company has been at the forefront of precision engineering, manufacturing high quality components for critical and super critical applications. Notes Sachin Agarwal, Chairman and Managing Director, "Our unwavering commitment to excellence, combined with our extensive industry experience, has earned us a reputation as a trusted and reliable partner."

DIVIDEND BLUES

Despite its high profile, the company's financial performance is not that impressive. Even after six decades of existence, its sales turnover is around Rs 200 crore and net profit only Rs 26 crore. Its shareholders, who are jubilant over the stock price (around Rs 6,000 per share of the face value of Rs 10) are, on the other hand, disappointed that the company is not paying any dividend.

However, we have picked this stock as the Fortune Scrip for this fortnight as we strongly believe that the company's future prospects are fantastic and it will reward its shareholders going ahead. Consider:

• The company's products find application in a wide spectrum of industries, including aerospace, defence, oil and gas, liquefied natural gas (LNG), ships and marine, valves and flow control, power plants and turbines, pulp and paper machinery, and mining and earth-moving machinery. All these industries are growth-oriented and have tremendous scope for further development.
• PTC is in expansion mode. Between 2015 and 2020, it incurred capex of Rs 190 crore to set up a production unit to manufacture castings of upto 6,000 kg using the replicate and rapid cast technologies, and new casting methods such as Foryecast, Print cast and Titanium cast, which have strong demand potential globally

TITANIUM INGOTS

• The company is one of the global players to have the capabilities to manufacture titanium ingots. It also manufactures titanium ingots from recycled/scrap titanium alloy ingots. These ingots have equal acceptability compared to ingots manufactured using titanium sponge. In other words, cost effective titanium scrap is a highly profitable proposition for the company.
• The company is emerging as a leading player in the fields of aerospace and defence. The government's steadfast move towards self-reliance, encapsulated in the term 'Atmanirbhar Bharat', particularly in the realm of aerospace and defence speaks volumes for the growth prospects for PTC Industries. The government's strong commitment to bolster self-sufficiency especially in the field of defence, is well reflected in its increasing defence spending. In the last Union budget, India's defence expenditure was approximately $ 74 billion. Projections indicate that by 2050 the anticipated growth of defence expenditure will be $ 183 billion, indicating a CAGR of 12 per cent.
• In these circumstances, with a view to expanding its capabilities and capacities in the fields of aerospace and defence, the company is settting up a 15,000 sq m plant on a 50-acre site in the Lucknow (UP) Defence Industrial Corridor with comprehensive state-of-the-art equipment and technological capabilities.

AEROSPACE FORAY

• With a strong product portfolio backed by unmatched quality, PTC has reinforced its position globally and within India, and has emerged stronger than ever with lasting customer relationships coupled with specialized manufacturing capabilities.
• The company is making rapid strides in the segments of aerospace and defence. In November 2023, PTC Industries and Safran Aircraft Engines, the French global leader in aero engine design, development and manufacturing, announced a multi-year contract on cooperation for casting parts for LEAP jet engines. PTC Industries will produce titanium casting parts for Safran Aircraft Engines. This agreement reflects the company's commitment to the Indian government's 'Make in India' policy. Safran Aircraft Engines' ambition is to develop a comprehensive aero engines ecosystem in India, strengthening its global supply chain built for the LEAP production ramp-up. The first titanium casting parts for LEAP engines are scheduled to be delivered early in 2024.
• Safran Aircraft Engines, alongside with other Safran companies, has a strong footprint in India with five production facilities in the country (between Hyderabad, Bangalore and Goa), which will be completed by a sixth site in Hyderabad dedicated to the LEAP MRO activities by 2025. The country is the third largest operator of the LEAP engine in the world, with 75% of Indian commercial aircraft being equipped with CFM's advanced turbofan. The contract with Safran Aircraft is significant as it officially marks the entry of PTCIL in the commercial aerospace segment which is growing at a phenomenal pace. To get some perspective, it is important to note that to date more than 2,200 LEAP engines have been ordered by Indian airlines.

CAPEX BOOST

• In the past decade or so, the company has invested heavily in capacities and capabilities. Most of its capacity expansion is expected to go on stream from FY 2025 onwards and to be completed by 2026-2027, by which time the company is poised to grow in many multiples (provided capex is done on time, which we are confident will happen). Aerospace and defence is a decadal theme and PTCIL is strongly placed to avail the benefits from it.
• The company's financial position is very sound, with reserves at the end of March 2023 standing at Rs 256 crore - almost 20 times its equity capital of Rs 13 crore. The company is reducing its borrowings and will become a debt-free entity in due course. Of course, the heavy and widespread buying has pushed up the stock price to Rs. 5975. But as future prospects for the company are buoyant, discerning investors can take risk of accumulating these stocks at every decline as barring unforeseen headwinds, the stock price can hit even Rs. 10,000-mark in due course.