Fluidomat: A value play

Fluidomat: A value play
Fluidomat is the manufacturer of fluid couplings, a devices which is used to transfer power from one part of machine to another smoothly. It is used in wide array of industries such as power, steel, mining, automobiles among others.The company is based out of Dewas, near Indore. As per its website it has been in existence since 1971. However company has been loss making in early 2000s but significant investment in its user industry such as Steel, Power, Mining in last decade turned around the fortunes of the company. With improved cash flows company was able to get rid of debt, then resorted to increasing cash balance and capex, and is now in comfortable position and has improved dividends. The company has also undergone capex to increase capacity. The stock has already run up in prices in last 3-4 years with changing fortunes to match the turning fundamentals. Next big triggers for the stock, revival of Indian capex cycle and increased capacity. Even based on current parameters stocks is available at reasonable valuations

Link to the company website: http://www.fluidomat.com/

Positives

1. Stable operating margins: Average EBITDA margin of 17.5% in last 10 years. Never dipped below 14.5%.
2. Expected EPS of ~INR10/share. At 49 it trades at TTP P/E of 5x.
3. Sales CAGR of ~20% in last 10 years although it will be lower teens in FY13.
4. Dividend payout of ~20% since last 2 years indicates positively for the management. Usually small caps or for the matter many midcaps have terrible record of being fair with minority shareholders.  Dividend payout shows management intent to be alteast have some fairness towards minority.
5. Zero debt company. At 1HFY13 end it got rid of its entire debt. 
6. Promoter have been progressively increasing stake from 32% in FY08 to 52% in FY13.
7. INR13m capex just near completion while moving to another INR20m capex which can be done using internal cash flows. This could provide sales growth momentum going forward.

 Negatives

1. Business not scalable as market very niche and small operations.
2. Market cap too small to interest institutional investors. Total free float MCap is just INR120m

Disclaimer: I do hold certain number of shares in the Fluidomat

How does fluid coupling actually work?
Very good video on its working, although bit old but explained superbly.