DISA India stock is a good investment

There is no denying the government’s commitment to spur the infrastructure investment cycle which would lay the foundation to sustainable growth through broader reforms and efficient administration. The RBI has also been supportive of neutral liquidity and a stable market linked policy rate. The stress in the banking system has also been addressed boldly with provisioning of bad loans and capitalisation commitments. After the budget, the focus has turned towards uplifting the weakness in the rural economy and farm sector in a bid to broad base growth. With the twin deficit well contained, inflation under control, a relatively stable currency and a strong political mandate, there is definitely concern at this point of time about soft earning growth but a detailed analysis shows corporate earnings (ex-commodities) improving at a healthy pace. Economic recovery is seen in the road and defence segment but external sectors like exports and capital expenditure related to oil, gas, metals and real estate are quite slow. On the other hand the domestic part is pretty okay due to a strong consumer balance sheet but the external side is facing headwinds and has lot of structural issues. Hence, a slight rebound in commodities, lower interest rates, good monsoon, government spending and stability in global economy could improve corporate margins in FY17. Every bull market is interspersed with corrections but these could be opportunities to buy India. Last week correction in the Indian stock market underlines the same. With every turn in the global market, the India story gathers more interest, momentum and conviction in that order. This is sure to gather pace in the coming quarters and all investors should remain positive on our equity market with a medium to long term outlook.

Attractiveness of India as a manufacturing hub and uptick in domestic end use market is leading to high growth in the Indian foundry industry. As the world’s casting production is fast shifting from matured economies to China and India, many European and US manufacturers are setting up their facilities in the country. China’s increasing dominance as a global foundry is causing manufacturers looking to diversify their vendor base to turn to India for their outsourcing requirements. DISA India is a world leader in mouldings technology incorporated in 1984 at Bangalore. It is a subsidiary of the Denmark based DISA Group holding 75% shares while the rest is with the Indian public. The ultimate parent is the Noricon Group which is the world’s leading metallic parts enhancement company. The Indian foundry industry is the second largest in the world growing at a CAGR of over 12% since 2002 and poised to grow further. DISA India has a 70% market share in the segment and services right from inception to completion. Right from setting up the plant to plant design to equipment installation, it offers superior technology unmatched by others. The company has reported sales income of Rs 52 crore and a net profit of Rs 7 crore for the quarter ended December 2015. On a tiny equity of only Rs 1.51 crore, the EPS works out to Rs 46. It is a totally debt free company. The stock trades on BSE at Rs 4,000 and is a solid buy for investors looking for marquee fundamental companies which have not been on the radar of stock pickers. DISA India can easily achieve a price target of Rs 5,500 in 18 months time frame.