Financial Performance:

Banco Products reported modest 18% rise in net profit at Rs 19.23 crore over 30% increase in the Total Income from Operations at Rs 113.36 crore in the quarter ended June 10. OPM expanded just by 30 bps to 25.5% and pushed Operating Profit up by 31% to Rs 28.86 crore. Other Income declined by 46% to Rs 0.23 crore while interest cost sprung up by 527% to Rs 1.70 crore. Finally PBT was up by 23% to Rs 24.24 crore. However, effective tax rate increased by 280 bps to 20.7% and restricted growth in Net Profit to 18%.

Highlights of the call are:

• Banco Products is a substantial player in aluminum and copper radiator manufacturing in India and also manufacturer's auto motive and industrial radiators and gaskets. In domestic market, OEM sales account for 80-85% and around 20-15% from after sales market.
• The company's customer spread has improved much in earth moving equipments at 20-25% and industrial engine at 30-35% while automotives stll share higher chunk at 50-55%.
• Expects radiator segment be driven by 22-25% demand growth in FY11.
• On consolidated front, at NRF (Netherland based company) - Net sales was 105 crore and PAT was Rs 4 crore. The company expects NRF to report same kind of performance in FY11 too. Currently, the company's aim in NRF business is to improve the profitability. It has spotted out some opportunities down the road with out making significant investments in NRF and expects the developments will show results in 6-18 months of time.
• The company has invested USD 3.4 million in KPL (Tanzanian Subsidiary) – molasses business and expects that the commercial production will start by end of December 10 or January 11. Expects Rs 40 crore of Net sales in first year of operation and IRR above 25%
• The company proposes to invest USD 12.3 million in Lake Cement (LCL) – a Tanzanian company which is to set up a green field project for manufacture of cement at location of Kimbiji, near Dae es salaam, Tanzania. The company takes majority stake of 51% in this company and rest was held by Tanzanian leading business groups.
• The Project cost is estimated at USD 70 million and the equity infusion of the company is USD 24 million. The capacity planned is 500,000 MT annually. Project includes limestone mining, clinker and cement production. The land of 70 hectares of limestone deposits is already acquired and all major necessary government clearances have been obtained including environmental clearances and mining license.
• The results after the survey of the land conclude that 31 million MT of limestone is available at LCL-site, enough to last for 40 years for Cement Production at full capacity. By going below the average depth of 35 mts - down to 45-50 mts level, additional 13 million MT of good quality limestone would be available to last for 16 more years. Other raw materials like Clay and Sand are available either at site or within a radius of 2 km. Gypsum would be available from existing mines 200kms away. Coal will be imported from South Africa by Sea and used as fuel for the Kiln.
• The Cement Market of Tanzania and its neighbors – except Kenya and Uganda – were estimated in 2009 at 2.68 million MT. With a compound growth rate of 8% in Tanzania and 6.5% with its neighbors, this Demand for Cement will climb up to 4.45m MT by 2016. The neighboring markets of Rwanda, Burundi and West DRC are land-locked and have no cement production at all. These markets will have easier geographical and commercial access from Tanzania under the recently introduced East-African Community's Free Trade Regime.
• Commercial production is expected to begin from 2013. Market share for Lake Cement will be about 11% at full production level.
• Established wholly owned subsidiary in Mauritius and Singapore for conducting overseas business operations and to hold investments in overseas group companies. The Investment in proposed WOSs in Mauritius and Singapore and Joint Venture Company (LCL) shall be subjected to such approval of the competent authorities as may be required.
• As per estimates drawn by the company, at full production, sales value will be USD 62.5 million and profits at approximately USD 20 million. IRR on equity over 15 years is estimated at 48%. Return on equity on 4th year of operation is estimated at 76%.
• Total debt on books is Rs 96 crore and cash was Rs 2 crore as on the quarter ended June 2010.
• Every year, the company spends Rs 15-20 crore of Capex in capacity expansion or debottlenecking so as to aid its growth.