Paramount Cables Infratech Ltd - 33.00 Rs
Incorporated in 1978, Paramount Cables Infratech Ltd (PCIL) erstwhile Paramount Communication Ltd, is the only Indian cable company to offer comprehensive range of specialized cables & wires needed by all sectors of the economy viz. power and electricity, thermal and nuclear power plants, space research, railways, telecom, IT, oil and gas, petrochemicals, steel, electronics & various other industries. Based on the product type, company has classified its business operation into three categories.
A. Power Cables: PCIL manufactures the entire range of cables for power sector including high tension & low tension power cables, Aerial bunch cables, control cables, instrumentation cables & thermocouple cables. Company derives nearly 55% revenue from this segment and is well positioned to take maximum advantage of the boom in the power sector because of its long-standing and prestigious track record with major players in the industry including NTPC, BHEL, Areva, L&T, various Electricity Boards, Power Grid, Reliance Energy, ECC, ABB. Alstom, Siemens amongst many others
B. Railway Cables: Ironically, Paramount is the single largest supplier of underground quad axle counter cables and underground signaling cables to the Indian Railways. It even supplies specialized instrumentation cable for underground and elevated Metro projects. Notably, more than 30% of total revenue comes from Railway alone.
C. Telecom Cables : With 15% revenue share, this segment offers a single point source for a wide range of high quality telecommunication cables which covers optical fibre cables, jelly filled cables, aerial telecom cables, buried service wires, installation cables, co-axial cables, computer cables etc.
PCIL has two state-of-the-art manufacturing facilities at Dharuhera, Haryana and Khushkhera, Rajasthan. These plants are equipped with unique swing facility which enables it to shift from one type of cable manufacturing to other type depending upon the demand, thereby de-risking the business and increasing the capacity utilization. Last fiscal, company commissioned 1,500 km HT power cable capacity at its Dharuhera plant and increased the LT power cable capacity to 25,000 km. This year it has set up additional capacity of 30,000 km of LT and 2,000 km of HT power cables at the Khushkhera plant thereby taking the present installed capacity to 55,000 km of LT and 3500 km of HT power cables. On the back of robust demand company is further augmenting its capacity of LT by 35,000 km and HT by 2500 km. For this it has already commenced land development and civil construction on 25 acres of land just opposite to its existing plant. Post completion of this expansion which is expected to complete within this calendar year, PCIL will boast of having a capacity of 90,000 km for LT and 6,000 km for HT.
More importantly, in Sept 2007, PCIL acquired UK based AEI Cables which is one of the oldest and internationally most reputed brands in the world, with numerous customer approvals and technological strengths. With a turnover of more than Rs 500 cr AEI claims a market share of 10-15% in UK and currently operates at 60-70% capacity level at its plant in Birtley, North East of England. Interestingly, this Rs 105 cr acquisition was substantially funded thru borrowings against the AEI Cables assets with PCIL actually infusing only Rs 25 cr. However AEI has made loss at PAT level for the first half of FY08, which PCIL is planning to turnaround by end of current fiscal.
In order to fund its expansion plans, PCIL had raised more than Rs 65 cr in April 2006 thru GDR route @ Rs 40 per share. Subsequently in Nov 2006, it raised another Rs 120 cr thru FCCB, to be converted @ Rs 53 per share. Now it is planning to make preferential allotment of 91 lac warrants to promoters and promoter group which is expected to be made around Rs 35. To conclude, with huge investment in power sector, railway expansion plan and rapid growth in telecom sector, the cable industry in general and PCIL in particular is on exponential growth. Fundamentally, company reported stellar performance for FY07. However for FY08 it is estimated to report sales of Rs 450 cr and profit of Rs 35 cr on standalone basis. This works out to an EPS of more than Rs 3 on diluted equity (post conversion of all FCCB @ Rs 53) of Rs 21.50 cr with face value as Rs 2/-. On consolidated basis, the key trigger will be the turnaround of AEI cables. Once this UK subsidiary start reporting reasonable net profit, the share price of PCIL will shoot up substantially. Hence investors are recommended to keep accumulating the scrip at declines for a price target of Rs 50 (i.e. 50% return) in 12~15 months.
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