Background
LINDE INDIA having Registered Office in Kolkata, is a part of Linde Group who are the world's largest industrial gasses company by market share as well as revenue. Linde India has acquired Praxair, Inc. , an American worldwide industrial gases company. Praxair, Inc. was the largest industrial gases company in North and South America, and the third-largest worldwide by revenue (2018) and BOC (2006), the dominant player in the Gases front in India.
Business Model
Company’s business has two broad segments, viz. Gases and Related Products and Project Engineering in line with the operating model of the Linde Group.
Gases and Related Products
The Gases and Related Products segment comprises of pipeline gas supplies (Onsite) to very large industrial customers mainly the primary steel, glass and chemical industries, supply of liquefied gases through Cryogenic tankers (Bulk) to cater to mid-size demands across a wide range of industrial sectors and compressed gas supply in cylinders (Packaged Gas) for meeting smaller demand for gases mainly across fabrication, manufacturing and construction industry. The primary production of gases (oxygen, nitrogen and argon) is mostly achieved through cryogenic distillation of air in Air Separation Units (ASU). Oxygen, Nitrogen and Argon may also be produced in the gaseous state and supplied through pipeline to the Onsite customers, or produced in liquid form and stored in insulated cryogenic tanks for supply to Bulk customers or further processed in the Packaged Gas plants to bottle compressed gas in cylinders. The strategy of the bulk and packaged gas business continues to focus on building density and sustaining market leadership through application led gas sales and enhanced service levels. The Healthcare business, an important part of the Gases business provides high quality gases for pharmaceutical use such as medical oxygen, synthetic air and nitrous oxide in addition to providing state of the art medical gas distribution systems to major hospitals.
Project Engineering Division
The Project Engineering Division (PED) comprises the business of design, engineering, supply, installation, testing and commissioning of Air Separation plants and related projects on turnkey basis. The Project Engineering Division also has a ASME-”U” stamp certified plant manufacturing works to fabricate core proprietary equipment such as distillation columns for air separation plants, cryogenic liquid storage tanks, ambient and steam bath vaporizers, process vessels, LINIT plants, small sized cold boxes, containerized micro plants for cylinder filling for in-house use as well as for sale to third party customers.
Linde has made its foray into the Frozen Food Industry and commissioned a state of the art Food Lab and Technology Centre in Vijayawada, A.P., wrt Instant Quick Freezing (IQF) freezer for shrimp freezing.
Recent Initiatives of the Company
Linde India continues to focus on introducing new products and applications into the market to secure growth and improve margins. During 2018-19, the Company was able to secure a number of orders by leveraging Linde applications technology, some of which are highlighted below. Company secured its first major win by leveraging its technology around low level oxygen enrichment in the Sulphur Recovery Unit in the refinery sector. The year also witnessed wins using CIRRUS® and CUMULUS® technologies which help customers in emission control and solvent recovery in the bulk drugs manufacturing industry. The Company is also successfully leveraging the newly built state of the art Food Lab and Technology Centre in Vijayawada, by securing its first Instant Quick Freezing (IQF) freezer for shrimp freezing. As compared to mechanical freezing, Linde’s nitrogen application offered a low initial investment and lesser operating costs. The benefits to the customer are not only in terms of cost savings but are also in terms of enhancement of quality. Linde's IQF technology with use of liquid nitrogen also allows the customers to tag their premises as ammonia free. Besides this, the Company also applied its nitrogen solution for tyre curing successfully to secure a maiden order from tyre industry in India. Company continues in its drive for implementing Argon based shielding gas solutions for welding in the automotive industry, which is one of the major drivers of argon sales.
Healthcare is a strongly growing part of the gases business and your Company continues to maintain its leadership in the healthcare gases market. The liquid medical oxygen business recorded a volume growth of 4% as compared to 2017. The Company launched Linde’s Annual Report 2018 11 patented LIV® cylinders for medical oxygen in select cities, which is getting a very good response in the markets. We expect good growth in the LIV product line in the coming years. The Company has also launched ENTONOX® - an anaesthetic gas, which is very useful during natural childbirth and also short-term pain relief in a range of medical procedures. With the increasing adoption of natural delivery (in contrast to C-section delivery), Company sees a good opportunity for increasing use of ENTONOX® therapy going forward. The Distribution function which takes care of the supply chain in the Gases business is key to its strategy.
As mentioned earlier, the supply chain requires significant investments in the form of distribution assets and storage networks to service bulk volumes as well as in the form of cylinders to service relatively smaller volumes in the packaged gases business. During 2018-19, the Company implemented several measures to improve efficiency of the distribution function such as phasing out of low capacity tankers, introduction of 7KL tankers with flow meter for medical supplies, with the aim of reducing cost of delivery and improving billing accuracy. Besides, actions have been taken to improve delivered volume by about 2% by optimizing the payload per vehicle. Increased distribution capability of liquid products to 1500 tpd, improvement in supply failures, higher capacity utilization of VITTs and cylinder vehicles over 2017, improvement in kilometers run, etc. are some of the highlights of Deliver. Transport safety in India has its own share of challenges and to overcome and mitigate the same, the Company has installed equipment to monitor fatigue and distraction of the drivers on road.
The Company also set up a Transport Operation Center (TOC) to monitor and alert the drivers on a 24/7 basis anticipating fatigue and distraction from the TOC. The digital monitoring of the driver risk profile and other actions have helped the Company achieve 4.46 safe million kilometers run in 2018, besides, reduction in driving violations over last year. As a part of the Deliver program, all Transport Managers have undergone a Reboot Program and their competency were assessed by 3rd Party and were accordingly issued license to operate. Linde India had launched the Customer experience (Cx) Program in 2015. Cx performance is measured on a defined metric system across three KPIs which are Acknowledgement of the complaint, Response time and Target resolution time. All the three KPIs have shown further improvement as compared to 2017.
Opportunities and Threats
India continues to be the fastest growing economy in the world and the positive economic outlook of the country presents several opportunities in both the Gases and Project Engineering businesses of the Company. As per the World Economic League Table, India’s economy is likely to have overtaken France to become the 5th largest economy in the world in dollar terms in 2018 and the ongoing economic growth in the years ahead will present several opportunities for the manufacturing sector. However, the continuing trade tensions between U.S. and China and the rise in crude prices pose some risk. Demand from the steel sector remains the main driver for the growth of the gases business in India and the expansion as well as consolidation in the primary steel sector and refineries is expected to create opportunities for the Project Engineering business. The focus on application technology-based selling of gases in manufacturing, food and beverage, cement, paper, oil and gas, etc. is likely to create more demand for the gases business. The global merger between Linde AG and Praxair, Inc. is also expected to harness the potential of both the companies and deliver value to all stakeholders. On the other hand, aggressive addition of new merchant capacities by competitors in an already competitive market place may have adverse impact on price in certain geographies. A more detailed information on risk is covered in this report under the risk management section.
Concerns
The Covid19 slowdown will have a big impact on the economy and Linde is not exempt from the same. Linde is heavily dependent on Steel, Automotive and refineries for their business. I believe that the economic recovery will be spectacular and with many MNCs looking to end their dependency on China, will find an investment option in India.
Almost all major players in this industry have delisted (Ellen-Barrie and Inox Air Products). Linde is no different. Linde tried for a de-listing exercise but it failed as they did not accept the ‘Discovered Price’ of Rs.2027/-. (But they may try again since the share price has corrected quite a lot ).
Financials
The company has robust financials. If any one to Study the Financials go to http://www.linde.in/en/images/Linde%20Annual%20Report%202018%2030.04.2019_tcm523-537080.pdf
Chartered Accountants
Messrs Deloitte Haskins & Sells, LLP, Chartered Accountants (Firm’s Registration No. 117366W/W-100018).
Technicals
The script of the company trading around Rs 660/share as on 24th July 2020. On the technical chart it has support around Rs 650 and more stronger support at Rs 460 to Rs 480 level and on the higher side it can top around Rs 740 and then Rs 800 if the market continues to rally.
Recommendation👈
One may go for Linde India, a strong MNC, seeking every correction in stock price in tandem with the stockmarket. Whenever the market provides opportunity, one can pick Linde on SIP basis. It has a tremendous growth potential to go a long way. Further, it is a delisting candidate, in future the company may get delisted then the value unlocking will be much more better from the current market price.
In the current Covid -19 Market Scenario there is a huge demand for oxygen gas, this can provide a sharp up move in the demand of the company’s product and capacity level.
Conclusion
I am not an investment advisor as per SEBI guidelines. The opinions are personal. The above discussions are only meant for educating readers. The intention is to share knowledge to enrich potential investors and also get enriched by their feedback. My views are not biased.
