The reason behind Linde India's bumper returns! Should you invest?

The healthcare sector is experiencing a significant shortage of medical oxygen due to an increase in coronavirus cases all over the country. The demand for medical oxygen is rising and this has turned the spotlights towards the companies that supply oxygen to various healthcare units. 

The Prime Minister of India, Narendra Modi, highlighted that everything is being done to meet the current demand for oxygen. As investors, it is very important to find good opportunities in the market and cash on them. This attention to the oxygen stock might take the stock on an upward trajectory. One such company which deals in this business and is trading in NSE is Linde India. We have few more companies but many of them are trading in BSE only. 

Company Profile 

Linde India is an Indian subsidiary of Linde PLC which is the largest industrial gas company by market share and revenue. It deals with the manufacturing of liquefied or compressed inorganic industrial or medical gases. The company was established way back in 1935. Formerly, it was known as BOC India Limited but with Linde's acquisition of The BOC Group, the company was renamed again to what it is today.

Currently, they run more than 20 production facilities and filling stations across the country, including India‘s largest air separation plant. Linde Healthcare provides medical oxygen solutions, products, and services to meet the needs of care facilities. With the rise in cases and the shortage of medical oxygen, the government is left with two options. 

Firstly, they can import medical oxygen from other countries which can be very expensive due to logistical issues. If they don't want to take this route, they have to order more from the current oxygen suppliers like Linde India. This might also involve bolstering the plants these companies operate. 

Financial Overview of Linde India

Since 2012, the revenues of the company has increased every year. It was only in FY2020, the company faced a sharp fall in their top-line. Even though their revenues show a continuous uptrend, the same cannot be said for their net income. They have a significant EBITDA every year but their depreciation and amortization cost seems to lower their net profits every year. 

In FY19, Linde India had recorded net profits of Rs 727.19 crore but it fell drastically to Rs 151 crore in FY20. This shows that the national lockdown which was implemented in March 2020 had a huge negative impact on the company. On the positive side, their net income has grown at a yearly rate of 45.15% against the industry average of 27.86%.

Free cash flow is a very important metric for every company. It tells the cash company has after incurring cash outflows to support operations and maintain its capital assets. Since 2015, Linde India has managed to maintain a positive cash flow. In FY17, they reported a free cash flow of Rs 172 crore which surged to Rs 243 crore in FY19. 

The promoter holds a significant stake, that is, 75% in the company. This tells that they are confident about the business the company operates in and are banking to have a successful future. The second-highest proportion is held by retail investors which has increased from 10% in December 2019 to almost 12% in March 2021.

The Rally in the Stock

Like every other stock, Linde India Limited fell to Rs 405 on 23rd March 2020. On 21st April 2021, the stock closed at Rs 1870. Yes, the last two days there are two big red candles but that can be just a correction as well, especially after touching the high of Rs 2074. 

Covid-19 cases in India started increasing from February. Initially, the speed of this increase was slow but then it suddenly shot up. Look at the chart of Linde India for the month of February. Only four red candles, two of which had a very small body. On 1st February, the stock opened at Rs 899 and by 1st March it was at Rs 1642. A mighty rise of almost 200% inside a month! Some freak bullishness!

The rally didn't stop there as it is continuously trying to make higher highs. With the shortage of oxygen all over the country, the company will be looking to ramp up its resources. Not only due to the sake of this stock but also due to its importance, we hope this and other entities can produce more medical oxygen so that the demand can be fulfilled. If you have invested in this stock already, do let us know in the comments section. Stay safe and keep reading!