Best Mining Equipment Stock: Tega Industries vs Foseco India

In FY23, the Indian mining industry posted an impressive growth of 26%.

This momentum is expected to continue even in the financial year 2024, driven by growth across all key sectors, including the automotive, construction, power generation, and steel industries.

One industry that follows the growth pattern of the mining industry is the mining equipment industry.

Just like auto ancillary players that enjoy tailwinds of the auto sector, mining equipment stocks are considered as back-door plays to cash in on India's mining supercycle.

Two dominant players in this industry are Tega Industries and Foseco India. Both companies primarily supply to the mining industry.

Let's compare both companies on various parameters to see which one is better.

Business Overview

# Tega Industries

Tega Industries is a global leader in designing and manufacturing 'critical-to-operate' consumables such as specialised abrasion and wear-resistant rubber, polyurethane, steel, and ceramic-based lining components.

Its products are mainly used by the mining, mineral processing, and material handling industries across different stages of their value chain.

The company has a portfolio of over 55 products, serving over 700 customers across 70 countries.

It has six manufacturing facilities in India and abroad and a distribution network of 18 global and 14 domestic sales offices, through which it caters to the needs of its diversified customer base.

# Foseco India

Foseco India is a global leader in providing foundry consumables and solutions to the metallurgical industry.

Its key products include dry powder, coating, resin, ceramic filters, and exothermic sleeves.

The company has two manufacturing sites and one state-of-the-art research and development (R&D) facility through which it caters to the needs of its customers in ferrous and non-ferrous foundries that serve various end-user industries, including automotive, power, railway, construction, mining, and engineering sectors.

Particulars	Tega Industries	Foseco India
Market Cap (in Rs billion)*	83.3	24.6
Order Book (in Rs billion)**	6.7	NA

Source: Equitymaster, company presentation|*as on February, 23, 2024|** as of December 2023

Between the two companies, Tega Industries has a higher marketcap of Rs 83.3 billion (bn) when compared to Foseco India, which has a marketcap of Rs 24.6 bn.

If we compare the performance of both companies on the stock market, Tega Industries outpaced Foseco India by giving 100% returns in the last year. Foseco India, on the other hand, gave 92% during the same period.

# Revenue

In terms of revenue and revenue growth, Tega Industries is leading with a compound annual growth rate (CAGR) of 13.9% in the last five years.

High repeat orders from existing customers and high revenue from export orders have supported the revenue growth.

For Foseco India, the revenue grew at a CAGR of 2.3%, driven by growth in its premium strategic product lines.

Revenue

Net Sales (in Rs m)	Mar-19	Mar-20	Mar-21	Mar-22	Mar-23	5-Year CAGR
Tega Industries	6,338	6,848	8,055	9,518	12,140	13.90%
Foseco India	3,622	3,225	2,512	3,380	4,067	2.30%

Source: Equitymaster

# Profitability

Even in terms of profitability, Tega Industries is ahead of Foseco India.

Tega Industries' earnings before interest, tax, and depreciation (EBITDA) have grown at a CAGR of 22.9% in the last five years because of its differentiated high-margin business.

The company's net profit also grew by a CAGR of 42.9%, driven by high operational efficiency.

Foseco India, on the other hand, witnessed a 4.6% CAGR growth in EBITDA and a 7.5% growth in net profit in the last five years driven by high sales growth.

With respect to profit margins, Tega Industries expanded its margins at a faster rate than Foseco India.

Its five-year average gross profit and net profit margin are 19.4% and 11.2%, respectively, whereas, for Foseco India, margins stand at 12.8% and 9.3%, respectively.

Profitability

EBITDA (in Rs m)	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023	5-Year CAGR
Tega Industries	981	1,078	1,915	1,868	2,749	22.90%
Foseco India	498	446	205	438	623	4.60%

PAT (in Rs m)	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023	5-Year CAGR
Tega Industries	309	637	1,364	1,169	1,840	42.90%
Foseco India	320	345	154	327	460	7.50%

Gross Profit Margin	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Tega Industries	15.50%	15.70%	23.80%	19.60%	22.60%
Foseco India	13.70%	13.80%	8.20%	13.00%	15.30%

Net Profit Margin	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Tega Industries	4.90%	9.30%	16.90%	12.30%	15.20%
Foseco India	8.80%	10.70%	6.10%	9.70%	11.30%

Source: Equitymaster

# Debt Management

At the end of financial year 2023, Tega Industries has a long-term debt of Rs 1.4 bn, a debt-to-equity ratio of 0.1x, and an interest coverage ratio of 13.3x.

Foseco India, on the other hand, is debt-free and has an interest coverage ratio of 363.9x, indicating high liquidity and adequate cash flows.

The company has been continuously investing in capex either for maintenance or expansion. It has recently invested to upgrade the machinery in its plant.

Foseco India also spends close to 30% of its revenue on R&D to develop new products and improve the efficiency of its manufacturing process.

Despite spending heavily on capex, the company managed to remain debt-free.

Tega Industries, on the other hand, is also investing in capex. It has a proposed plan of investing Rs 2.5 bn towards a greenfield capacity enhancement in one of its plants.

The company has also planned capacity expansions in all its plants.

Moreover, it has grown inorganically in the past, which proved to be successful for the business. It continues to acquire new businesses to expand its business.

Despite this, its debt-to-equity ratio is only 0.1x, giving the company an opportunity to increase its leverage.

Debt Management

Debt to equity ratio (x)	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Tega Industries	0.1	0.2	0.1	0.1	0.1
Foseco India	0	0	0	0	0

Source: Equitymaster

# Financial Efficiency

To measure a company's financial efficiency, it is important to look at two ratios: return on capital employed (RoCE) and return on equity (RoE).

RoCE gives us an idea of how much return the company generates from total capital invested. In contrast, RoE tells us how much return the company generates for its equity investors. A high and consistently growing ratio is considered better.

For Tega Industries, the five-year average RoCE is 20.3%, whereas for Foseco India it is 24%.

Even in terms of RoE, Foseco India is ahead of Tega Industries, with a five-year average return of 16.8%. Tega Industries has a five-year average RoE of 15.4%.

Financial Efficiency

ROCE	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Tega Industries	15.10%	14.40%	28.90%	21.60%	21.40%
Foseco India	32.30%	29.10%	11.70%	20.90%	25.80%

ROE	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Tega Industries	7.70%	13.80%	22.20%	15.90%	17.50%
Foseco India	20.50%	20.10%	8.50%	15.70%	19.30%

Source: Equitymaster

# Dividend

A dividend-paying company is considered more stable than a company that doesn't. This is because a company pays dividends from its profits, and consistent dividends indicate that its financials are strong.

To assess a company based on dividends, you can consider three parameters: dividend per share, dividend payout ratio, and dividend yield.

Dividend

Dividend Per Share (Rs)	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023	5-Year CAGR
Tega Industries	0	0	0	0	2	NM
Foseco India	25	25	15	25	40	9.90%

Dividend Yield	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Tega Industries	0.00%	0.00%	0.00%	0.00%	0.40%
Foseco India	1.40%	1.70%	1.20%	1.70%	2.40%

Dividend Payout Ratio	Mar-2019	Mar-2020	Mar-2021	Mar-2022	Mar-2023
Tega Industries	0.00%	0.00%	0.00%	0.00%	7.20%
Foseco India	49.80%	46.20%	62.10%	48.90%	55.60%

Source: Equitymaster

In terms of dividends, Foseco India outpaced Tega Industries.

The company's dividend has grown at a CAGR of 9.9% in the last five years. Its five-year average payout and yield are 52.5% and 1.7%, respectively.

Tega Industries, on the other hand, started paying dividends only in the financial year 2023.

It paid a dividend of Rs 2 and has a dividend payout ratio of 7.2% with a yield of 0.4%.

# Valuations

Valuation ratios help us estimate the actual worth of a company.

Two important valuation ratios are price to earnings (P/E) and price to book value (P/B). When compared to peers, a high ratio indicates the company's shares are overvalued, whereas a low ratio indicates they are undervalued.

Since Tega Industries shares were listed in December 2021, we have taken only a 2-year average to compare the two companies.

Valuations	Tega Industries	2-Year Average	Foseco India	2-Year Average
P/E (x)	47	26.6	33.8	26
P/B (x)	7.5	4.4	9.1	4.5

Source: Equitymaster

The current P/E of Tega Industries is 47x, whereas Foseco India's is 33.8x.

If we compare them to their 2-year average and the industry average, both companies are look overvalued.

Which Mining Equipment Stock is Better: Tega Industries or Foseco India?

In terms of revenue and profit growth, Tega Industries has the upper hand when compared to Foseco India.

However, in terms of dividend payment and financial efficiency, Foseco India is a better company.

As a global leader in foundry services, the company has always invested heavily in R&D to introduce new products to its portfolio. It continues to do the same to expand its product portfolio.

Foseco India is also investing to strengthen its distribution channel.

Apart from this, it is undertaking capacity expansions and upgrading existing machinery to improve its profitability.

Tega Industries, on the other hand, has a multipronged growth strategy.

It plans to penetrate existing geographies and expand to new geographies to improve its revenue and profits.

The company also invests in R&D to develop new products and expand its portfolio.

It is setting up a greenfield plant in an existing manufacturing location to increase capacity and grow inorganically to expand its presence.

Both companies are investing towards their next leg of growth.

With government reforms like Make in India, smart cities, rural electrification, and renewable energy targets, the need for metals and mining will increase.

To add to this, the government recently passed the new Mines and Minerals (Development & Regulation) Amendment Bill allowing private companies to mine six out of 12 atomic minerals including lithium, and deep-seated minerals such as gold and silver.

This will increase the demand for mining equipment and consumables and both Tega Industries and Foseco India are well equipped to meet this demand.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...