Linde India share price: Antique stock broking initiate coverage with Buy rating and target price of Rs 2170

Linde India, after business integration with Praxair India, is well poised to register exponential earnings growth over the next 3-5 years, on the back of expected acceleration in demand for industrial gases in India. The company has a dominant position in the country, with a strong manufacturing base, brand equity and technological prowess. Most 'high-growth' quality MNC engineering companies are trading at a significant premium to the broad market, due to high quality businesses, growth opportunity and superior management quality. Antique stock broking believes that Linde India falls in a similar category. Antique stock broking initiated coverage with Buy rating and target price of Rs 2170 based on 45 x CY23e earnings.

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Linde India, the most dominant player in the Indian industrial gases market:

 In 2018, Linde Plc and Praxair Inc, the global No. 2 and No. 3 industrial gas players, merged their businesses. Following this in 2019, Linde India and Praxair India, integrated their businesses in India, subject to divestment of a few businesses. Antique stock broking believes that this wouldn't have happened at a better time. Before business integration, Linde and Praxair commanded around 40-50% market share in the industrial gases market. Post-business integration, Linde India is expected to continue dominating the industry. Linde India is also expecting Rs 3.5 bn of synergy benefit over the next 3-4 years, largely through cost saving and pricing discipline which will potentially improve margins meaningfully.

Antique stock broking believes that manufacturing segment is likely to rebound strongly over next few years and may contribute 20% to GDP by FY25 (from current 14% of GDP) because of significant possibility of India becoming part of Global supply chain as many countries adopt "China plus one" model; production linked incentive (PLI) may result in Rs 8 trn of incremental annual sales or 10% of Manufacturing GVA (considering 30% value addition); and Rs 105 trn Infrastructure pipeline over next 5years - double as compared to previous 5 years to spur manufacturing demand.

The Indian hospitals sector, which is estimated to grow to USD  132 bn by FY22, is growing at a growth rate of 16-17%. Given the Covid-19 pandemic, and India's resolve to enhance expenditure on healthcare, the healthcare and hospital sector can grow at a faster rate than in recent years. This augurs very well for critical industrial gases like oxygen.

Antique stock broking expects Linde India to post 20% revenue CAGR over the next 3-years on the back of demand from steel, manufacturing and healthcare sectors. Linde India reported EBITDA margin of 25.5% in CY20, despite lower revenue base. Antique stock broking believes that business integration with Praxair will bring cost and pricing synergies which will further enhance profitability.

Antique stock broking expects EBITDA margin to improve to 29% by CY23, resulting in earnings growing by 2.8x by CY23. Linde India is looking at the 'life-time' growth spectrum in India. Demand outlook from metallurgy, manufacturing and healthcare sector appears to be a multi-year opportunity. In this backdrop, business integration with Praxair India will create sustainable and profitable growth for the company. Antique stock broking initiated coverage with Buy rating and target price of Rs 2170 based on 45 x CY23e earnings.