APW President Systems Ltd. (Code:590033) Rs.114

APW President System Ltd. (APW) originally began as a small-scale partnership firm in 1981 but was bought over in 1998 by Applied Power Inc of USA in 1998, which has a chain of manufacturing and distribution facilities in more than 70 countries. Collaborating with a worldwide leader in the enclosures industry enabled APW to access not only the latest product designs but also state-of-the-art manufacturing technologies and other group resources. Today, APW is one of the few manufacturers in India offering enclosures to every segment of the electronics industry. Although the major source of its revenue is from its racks and cabinets division but its technology product division is also growing at a phenomenal pace of more than 50%. In fact, this division was recently awarded the ‘Top Sales Growth' trophy for the Asia Pacific region by Avocent, who are the worldwide market leaders for KVM Products and high end Server Switches for large enterprise networks.

APW’s manufacturing facilities located in Pune and Bangalore are fully integrated plants inclusive of a hot phosphating pre-treatment line, wet-paint and powder-coating paint shops, chemical evaluation laboratory, digitally controlled machinery and huge storage, assembly and shipping areas. To meet the increasing demand, the company is regularly expanding its production capacities and the expansion underway at Pune is expected to be completed shortly in few weeks. Of late, APW has also made progress in Contract Manufacturing resulting in a spate of good orders, which kept both its plants operating at near optimal levels. Last fiscal, its Bangalore plant was visited frequently by very large multinational companies who discussed contract manufacturing opportunities and assessed the company's capabilities and manufacturing systems. Moreover, the company is regularly exporting its products to the Middle East markets, South East Asia and USA. The enormous growth in the IT and Telecommunication sectors augurs well for APW as its sales growth is directly linked with the major players in these two sectors investing in and upgrading their infrastructure or setting up new networks. Also, increased activity in the banking sector has led to high offtake of its products related to ATM parts.

For FY06, its sales grew by 40% to Rs.77 cr. but net profit jumped 75% to Rs.6.30 cr. However, it may not be able to maintain the same growth going forward as local manufacturers apart from facing stiff competition from Chinese cabinet manufacturers copy its products. Hence for FY07, it is estimated to report total revenue of Rs.90 cr. with profit of Rs.7 cr. This works out to an EPS of Rs.12 on its equity of Rs.6.05 cr. With foreign promoters holding 40% stake, the company deserves much higher valuation. Investors are advised to buy at sharp declines around Rs.100 levels as the scrip has the potential to appreciate 40% in 12-15 months.