Birla Power Solution - Rs.39.00

Incorporated in 1984, Birla Power Solutions Ltd (BPSL) belongs to the Yash Birla group and is better known by its earlier name, Birla Yamaha Ltd. After the termination of its Joint Venture Agreement with Yamaha Motor Co. Ltd of Japan a few years ago, it adopted the present name. Today, it is the largest provider of power solutions and manufactures generators, pumpsets, inverters, UPS, batteries, sprayers and multi-purpose engines. In fact, BPSL was the first company to manufacture portable generators in India and roll out self-start gensets in the country and the first to introduce emission compliant generators. Being a market leader with a network of more than 850 dealers, it produces a wide range of generators catering to power requirements from 500W to 5.5KW and has good expertise in manufacturing 2 stroke and 4 stroke engines. BPSL’s manufacturing unit is big and modern located in Dehradun with a capacity to produce 75,000 Gensets and 25,000 multi purpose engines.

Due to stiff competition from China and stringent noise/air pollution norms, the company’s topline and bottomline was under pressure since the past few quarters. But now the management has turned aggressive and has taken a lot of initiatives to make it a profitable company again. Witnessing a decrease in sales of gensets, the company is now concentrating more on other products like electrical appliances, inverters, pumpsets and multipurpose engines etc. It has chalked out plans to launch products like tillers, lawn mowers and rain-guns under the fast-growing multiple-application engines division. The company is also looking to outsourcing the production of inverters and launching a range of electronic stabilisers and inverter-batteries. It also plans to increase its range of pumpsets and sprayers in the lower power range. The management is putting more thrust on exports because of which generators as well as multi purpose engines are gaining increasing acceptance in the African sub-continent, Middle East and Far East countries. Besides, BPSL has recently launched its first co-branded LPG-fuel generator through HPCL's 2,000 dealerships across the country and is looking at extending the LPG-fuel option to its entire gensets portfolio.

Currently, its fundamentals are not that strong given the high debt and rising inventories but the future prospects look good and the company can turn around strongly in the coming quarters. For the six months ending 31st March 2005, its net sales grew by 40% to Rs.39 cr. but the NP dropped to Rs.0.20 cr. compared to Rs.2 cr. in the previous corresponding period due to higher interest cost and lower ‘other income’. But considering the company’s aggressive future plans, it could to report Sales of Rs.90~95 cr. and NP of Rs.6 cr. for FY05 ending Sept’2005. This would result into an EPS of Rs.6 on its current equity of Rs.10.50 cr. For FY06, it can report an EPS of Rs.8. Hence only long term investors should buy this scrip with a price target of Rs.60 i.e. appreciation of 50% in 15~18 months.