Emco Ltd - Rs 94.00
Incorporated in 1964, Emco Ltd (Emco) is the third largest manufacturer of transformers in India and a leading player in electronic energy meters and turnkey electrical projects. With its acquisitions, joint ventures and growth strategies, Emco has ensured its presence in all the major areas of the power sector and have come a long way from being a product supplier to end-to-end solutions provider in the transmission and distribution sector. The company has spread from one manufacturing location to seven manufacturing locations in India and is now poised to make its presence felt even in the overseas market. For better efficiency and to focus on each business unit, Emco has segmented its business into following four divisions:-
· Transformer Division (65%): This is the flagship division of Emco with three manufacturing plants having combined installed capacity of 20,000 MVA. It offers widest transformers range from 5 kVA, 11kV right up to 315 MVA, 400 kV for power generation, transmission & distribution. It is one of the leading players in manufacturing special application transformers like furnace transformers (for Steel Industry), large rectifier transformers (for Chemical Industry) and traction and locomotive transformers (for Railways).
· Meters Division (5%): This division has a state-of-the-art fully computerized manufacturing facility with an installed capacity of 1.3 million meters per annum - one of the largest in Asia. It offers metering solutions like tamper proof electronic energy meters, automatic meter reading solutions, prepayment metering solutions & high end metering like Trivector meters, Grid metering etc. It also offers a total energy and revenue management solutions to customers in the distribution business.
· Projects Divisions (30%): This division offers turnkey solutions from concept to commissioning of large electrical substation projects in the power sector. It focuses on turnkey projects in the T&D area, mainly catering to high voltage and extra high voltage substations up to 400 Kv and strengthening the sub-transmission and distribution network. It also undertakes entire industrial electrification work from designing to execution. Besides, with the acquisition and amalgamation of Urja Engineers Limited, Emco moved into the transmission line business enabling itself to offer a wider portfolio of products and solutions for transmission and distribution of power under a single roof to various customers. It can now construct EHV Power Transmission Lines upto 765 kV on a total turnkey basis and boasts of having a tower manufacturing facility up to 45000 MT/Annum. It also provides custom built outdoor packaged substation upto 1 MVA.
· International Division: This division basically offers the products and services of other divisions to the international market and currently derives around 20% of total sales from exports. With supplies to global majors such as SHELL, Global, Petrofac-UAE, Parsons-UK, Peebles-UK and other leading power utility multinationals in more than 30 countries, Emco has experience of designing transformers to meet various International standards like BS, IEC, ANSI, CSA etc and meeting the approval of independent Inspection agencies such as BVQI, Lloyds, Crown Agent, SGS and others.
With a goal to achieve 30% of revenue from international business, Emco has decided to set up a transformer manufacturing plant in South Africa to meet the growing demand in the African region and neighbouring countries. For this it has entered into a MOU with Edison Power (Pty) Ltd, a leading electrical contracting company from South Africa for this purpose. Emco has also floated a 100% subsidiary in Singapore which has already made investments in solar renewal energy company, USA and in a coal mine company, Indonesia.
Apart from above, Emco has setup 7 wind mills of 1.5 MW each in Maharashtra. Besides getting additional revenue on sale of electricity generated to MSEDCL, Emco has also registered this project with UNFCCC under CDM and is expected to start trading in CER from current year. Moreover the company is also in the process of setting up a 540 MW Coal-based power project near Nagpur for which it has already obtained the coal linkage from Government of India and has procured the land for the project. The plant is expected to commission before mid 2010 with a total estimated outlay of Rs 1100 cr. Further the company has plans for synergic diversification in to switchgear business, up to 400 kv, which would further add to the top line and bottom line of the company. Incidentally, the management intends to double the company’s turnover every two years.
Fundamentally, Emco has been performing excellent and been substantially benefited from the strong surge in investments towards improving the country's dilapidated T&D framework as also adding new transmission capacities. It caters to several govt and private entities such as MSEDCL, NTPC, APSPDCL, NDPL, Power Grid, IRCON, CSEB, KPTCL, ACC, Reliance group, Tata Group, Essar group, Aditya Birla group, Jindal group, Jai Balaji to name a few. For FY08 it registered 45% growth in net sales to Rs 944 cr whereas profit shot up 60% to Rs 64.50 cr posting an EPS of Rs 11 Rs on equity of Rs 11.77 cr having face value as Rs 2/- per share. Recently, company went for a stock split of shares to FV of Rs 2/- from Rs 10/- earlier. On the back of satisfactory nos for the latest June’08 quarter it is expected to clock a turnover of Rs 1250 cr and PAT of Rs 70 cr for FY09. This translates into EPS of Rs 12 on current equity. At a reasonable discounting by 12x times, scrip can appreciate 50% within 12~15 months.
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