About
Patels airtemp is in the business of condensers, heat exchangers and air conditioners. The company is in the same industry and business space as Blue star limited which is a better known company. You can find more about the company here

Financials
The company has been business since 1973, but has started doing well for the last 5 years. The ROE of the company has increased from 7% to around 30% in 2009. The company is almost debt free and may have some excess cash by the end of 2010.

The company had a revenue of 72 Crs and 8.7 cr net profit in 2010.

Positives
The company has grown its topline by more than 30% and bottom line 40%+ in the last 6 years. However at the same time the growth has come from extremely small base. The company has paid off its debt and is now debt free.

The company has a fairly diverse clientele and supplies its products to a wide variety of industries such as cement, chemicals, petrochemicals, textiles and engineering. In addition the company has the benefit of an ever expanding and growing market for its products.

Risks
The company is in a very competitive business with competitive advantages related to scale of operations. A substantial portion of the business comes from projects which involves competitive bidding. The company has started growing in the last few years and it remains to be seen if the company will scale up and enter the big leagues.

The current margins are in the range of 10%+. Blue star which is in a similar business has margins in the range of 5-7%. The ROE for both the companies is in the same range as Blue star is a more efficient user of capital compared to Patels airtemp. The efficiency is mainly to the size of the company. The difference in margins could be due to the pricing/ quoting approach of the companies.

If blue star is more aggressive in bidding, then we are likely to see Patels airtemp follow the same path if it intends to grow beyond the current size. If this happens, we are likely to see a reduction in net margins, though the bottom could still grow with the topline.

Conclusion
One can look at the financials of the company and assume that patels airtemp would continue to grow at the same rate. If one can make an assumption or have a strong reason to believe that the performance of the last 4-5 years will be repeated then the company is a bargain.

At the same time, one should also consider the fact that the company has been in the biz since 1973 and managed to grow to just 16 crs in the first 30 yrs. The rapid growth and improvement in the performance has come in the last 6 years.

I personally have not been able to make up mind on which scenario will play out and plan to follow the company and dig deeper. It is easy to assume that the company will repeat the performance of the last 6 years, declare the company to be undervalued and buy into it. I however would prefer to investigate deeper and watch the company for a while before buying into it.

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