Expansion At Kheda Facility Will Increase Capacity And Diversify Markets By Q3 FY '26

Key Takeaways

• Strategic diversification and partnerships position Anup Engineering to capture high-margin orders and secure steady export revenue.
  
• Facility expansions and export demand promise enhanced revenue opportunities and future growth potential.
  
• Volatility in orders, domestic sluggishness, geopolitical dependencies, and competitive pressures threaten Anup Engineering's revenue growth, profitability, and expansion efficiency.

Catalysts

Manufactures and fabricates process equipment for oil and gas, petrochemicals, LNG, fertilizers, chemicals, pharmaceuticals, power, water, paper and pulp, and aerospace industries in India.

• The commencement of Phase 2 construction at the Kheda facility is expected to be operational by Q3 FY '26, significantly expanding manufacturing capacity and potentially leading to increased revenue opportunities.
  
• The increase in export revenue, driven by demand from sectors like hydrogen, is expected to contribute to overall revenue growth, especially with good traction from international markets such as the Middle East, U.S.A., and Canada.
  
• By diversifying into critical equipment and complex metallurgies, Anup Engineering is poised to capture more significant and higher-margin orders, which could enhance net margins.
  
• Strategic partnerships and exclusive manufacturing agreements, such as with Graham, aim to secure regular business and tap into the export market, bolstering revenue stability.
  
• Expansion plans at various manufacturing sites are designed to support an annual revenue capability of ₹1,100 crores to ₹1,200 crores, providing the scale needed for future growth and improved earnings.

Anup Engineering Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Anup Engineering's revenue will grow by 27.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 19.2% today to 16.0% in 3 years time.
• Analysts expect earnings to reach ₹2.1 billion (and earnings per share of ₹95.95) by about January 2028, up from ₹1.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 59.1x on those 2028 earnings, up from 47.2x today. This future PE is greater than the current PE for the IN Machinery industry at 35.3x.
• Analysts expect the number of shares outstanding to grow by 2.75% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.6%, as per the Simply Wall St company report.

Anup Engineering Future Earnings Per Share Growth

Risks

• The company has experienced a short closure and descoping of a large export order worth ₹60 crores, which indicates potential volatility in order execution and could impact revenue growth projections.
  
• Domestic markets have shown sluggish performance over the past three quarters, which poses a risk to local revenue generation and diversification efforts.
  
• There is a dependency on geopolitical factors and trade tariffs that could affect international business, especially in key markets like the U.S., impacting revenue from exports and overall earnings.
  
• The ambitious expansion and increased capacity utilization plans require careful execution; any delays or inefficiencies could strain net margins and affect profitability targets.
  
• Competitive pressures in the domestic market and the aggressive pursuit of new orders may lead to compromised pricing strategies, potentially impacting net margins and the company’s ability to maintain profitability.

Valuation

• The analysts have a consensus price target of ₹4000.0 for Anup Engineering based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹13.1 billion, earnings will come to ₹2.1 billion, and it would be trading on a PE ratio of 59.1x, assuming you use a discount rate of 13.6%.
  
• Given the current share price of ₹2824.6, the analyst's price target of ₹4000.0 is 29.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.