Linde India, after commercial integration with Praxair India, is well positioned to record exponential growth in profits over the next 3-5 years, due to the expected acceleration in demand for industrial gases in India. The company holds a dominant position in the country, with a solid manufacturing base, brand image and technological prowess. Most “high growth” quality multinational engineering companies trade at a significant premium to the broad market, due to high quality companies, growth opportunities and superior management quality. The antique brokerage believes that Linde India falls into a similar category. The old stock brokerage initiated a hedge with a buy rating and a target price of Rs 2170 based on 45x CY23e earnings.
WATCH | Click Zee Business Live TV Streaming below:
Linde India, the most dominant player in the Indian industrial gases market:
In 2018, Linde Plc and Praxair Inc, the world’s 2nd and 3rd industrial gas players, merged their businesses. Following this in 2019, Linde India and Praxair India integrated their operations in India, subject to the divestiture of some businesses. The antique brokerage reckons it couldn’t have happened at a better time. Prior to commercial integration, Linde and Praxair had approximately 40-50% market share in the industrial gases market. After trade integration, Linde India is expected to continue dominating the industry. Linde India also expects Rs 3.5 billion in synergy benefits over the next 3-4 years, largely through cost reduction and price discipline, which will potentially improve margins significantly. significant.
Antiques brokerage estimates that the manufacturing segment is likely to rebound strongly over the next few years and could contribute up to 20% of GDP by FY25 (vs. 14% of current GDP) due to significant opportunity for India to become part of the global supply chain as many countries adopt “China Plus One Model”; Production Linked Incentive (PLI) may result in Rs 8,000,000 in additional annual sales or 10% of manufacturing GVA (assuming 30% value addition); and an infrastructure pipeline of Rs 105 trn over the next 5 years – double that of the previous 5 years to boost manufacturing demand.
India’s hospital sector, which is expected to reach $132 billion by FY22, is growing by 16-17%. Given the Covid-19 pandemic and India’s drive to increase healthcare spending, the healthcare and hospital sector may grow at a faster rate than in recent years. This bodes very well for critical industrial gases like oxygen.
Antiques brokerage expects Linde India to post a CAGR of 20% in revenue over the next 3 years driven by demand from the steel, manufacturing and healthcare sectors. Linde India recorded an EBITDA margin of 25.5% for CY20, despite a weaker revenue base. The antiques brokerage believes that business integration with Praxair will bring cost and price synergies that will further improve profitability.
Old stock brokerage expects EBITDA margin to improve to 29% by CY23, leading to 2.8x earnings growth by CY23. Linde India studies the spectrum of ‘lifetime’ growth in India. The demand outlook for the metals, manufacturing and healthcare sectors looks like a multi-year opportunity. In this context, commercial integration with Praxair India will create sustainable and profitable growth for the company. The old stock brokerage initiated a hedge with a buy rating and a target price of Rs 2170 based on 45x CY23e earnings.