Accurate Transformers Ltd - 127.00 Rs

Incorporated in 1988, Accurate Transformers Ltd (ATL) is the flagship company of the Delhi based Accurate group which has diversified interest in transformers, overhead line conductors, energy meters, insulating oils & chemicals. However ATL is engaged in manufacturing of power as wells as distribution transformers ranging from 25 KVA to 50,000 KVA in upto 220 KV class. These transformers are mainly supplied to various State Electricity Boards including those of Uttar Pradesh, Rajasthan, Punjab, Maharashtra and West Bengal on a made-to-order basis. As its transformers are in operation for years, the quality and reliability of company’s products is well established. Interestingly, ATL also carries out rural electrification project which involves the complete setting up of electricity in remote areas including the laying of lines, poles and substations. It has already implemented two such projects one at Etah district of Uttar Pradesh and another at Nainital District of Uttaranchal. With nearly 50% revenue coming from this segment, ATL’s business model is reasonably de-risked.

Being a nearly two decade old company, ATL has set up huge manufacturing facilities spread across Ghaziabad, Sikandrabad, Greater Noida, Dehradun & Haridwar. Although these plants are not equipped with latest hi-technological equipments, still it has a total installed capacity of more than 8000 MVA, which is quite huge. Unfortunately, due to mounting debtors and shortage of funds company has been working at very low capacity utilization. Hence it has ample scope to ramp up its operation provided it manages to get sufficient money as working capital. To overcome this situation, ATL is planning to raise more than around 10 cr thru preferential placement of equity shares to promoters and strategic investor. Moreover to cash on the infrastructure boom, ATL has taken forward steps in the business of rural electrification being upcoming and thrust area under the Rajeev Gandhi development program of the central government. Besides, it wants to further diversify in energy sector and has ambitious plans of venturing into power generation & distribution in future.

The government’s rural electrification initiatives such as APDRP, Power for all by 2012 program, restructuring of SEBs, entry of the private sector into the transmission and distribution segment etc, all these have led to substantial jump in demand of transformers. Accordingly, ATL also recorded 20% growth in sales to 180 cr and 40% rise in profit to 6 cr for FY07. Hence it reported an EPS of 20 Rs on tiny equity of 2.96 cr. Notably, ATL is earning very low profit margin compare to its peers and has scope of improving its margin in future. For the June ’07 quarter, sales increased by 40% to 26 cr but NP zoomed up 170% to 1.50 cr on back of higher margin at operating level. For FY08, company is estimated to report a turnover of 225 cr and PAT of 8 cr i.e. EPS of 27 Rs on current equity. This means the scrip is currently trading at P/E ratio of less than 5x times. However, the promoters don’t have a good track record and the scrip was de-listed due to non-compliance of provisions of the listing agreement. Secondly, they are making placement at low price which is against the shareholders interest. Despite all these concerns, the fact remain that company is operating in high growth sector and has enormous opportunity to grow leaps and bounds. Moreover, at an enterprise value of 55 cr, a company of this size is available fairly cheap. Investors are recommended to buy at current levels with a price target of 180/- Rs (i.e. 40% appreciation) in 9~12 months.