Revathi Equipments - Rs.635.00

Revathi Equipments Ltd. (REL) was established in 1977 and promoted by Drill Pvt. Ltd. in collaboration with Chicago Pneumatic Tool Company of USA (CP Tools) for the manufacture of water well rigs, blast hole rigs, drilling accessories and allied products. In 1987, CP Tools was taken over by Atlas Copco worldwide on account of which the REL became a part of Atlas Copco. In 2002, Utkal Investments led by Mr. Abhishek Dalmia bought out Atlas Copco’s stake (40%) and gained full management control over REL with a 60% holding in the company as on date. This Renaissance group company has three business segments viz. construction & mining equipments, power generation and treasury. It’s an ISO 9001:2000 certified company and its products are exported to USA, Jordan, Tunisia, Nigeria, South Africa, Australia etc.

Presently, REL holds about 45% market share in the domestic mining equipment market with the likes of Tata Steel, Coal India, Nalco, Hindalco and Gujarat Ambuja as its clients. It produces drills ranging from 4” to 12 ¼” which more or less covers the entire gamut of mined ores including coal, lignite, iron ore, bauxite, limestone, zinc, etc. But REL’s main growth driver in future will be its construction equipment division which comprises batching plants, transit mixers and concrete pumps. In combination, they mix various aggregates with cement to produce concrete, transport such ready-mix concrete (RMC) from a central batching location to the construction site and pump the RMC to the exact location where it is to be poured. For the power generation equipment, it has made a huge investment of around Rs.52 cr. in wind energy and has installed wind turbines having capacity of 2.4 MW in Rajasthan and 8.75 MW in Tamil Nadu. It has also invested around Rs.5 cr. in a 25 MW gas-based power project in Tamil Nadu. Given the managements background of being large equity investors over many years, REL also has a treasury division that invests surplus funds into the secondary market to generate better returns. Over a period of time, it’s possible that promoters may convert REL into a holding company and route strategic and non-strategic investments through it.

Financially as well as fundamentally, REL is quite strong with Sales of Rs.91 cr. and net profit of Rs.16.75 cr. posting an EPS of Rs.52 on its very tiny equity of Rs.3.21 cr. for FY06. Recently, after hitting a high of Rs.1214, its share price crashed below Rs.600, which prompted the management to announce a buy-back at Rs.700 from the open market and it created a corpus of Rs.10 cr. for the same. For FY07, it may clock a turnover of little more than Rs.100 cr. with net profit of around Rs.18 cr. leading to an EPS of Rs.56. For FY08, it has the potential to report EPS of more than Rs.70. Investors are, therefore strongly recommended to buy it at current levels with a price target of Rs.800 (30% appreciation) in 9-12 months. In the long-term of 24-36 months, it can break its earlier high of Rs.1200, which would mean 100% return from the current level.