Accurate Transformers Ltd - Rs 28.00
Established in 1987, 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. Notably, ATL pioneered the manufacture of transformers at a time when most electrical equipments were imported. Presently it manufactures power as well as distribution transformers ranging from 1 MVA to 40 MVA - in up to 220 KV class. Power transformers are used to transform power voltage from the generation point to the transmission point whereas distribution transformers are used to transform power voltage from transmission point to distribution of power to the end user. Presently, company supplies these transformers to state electricity boards across the country including those of Uttar Pradesh, Rajasthan, Punjab, Maharashtra and West Bengal on a made-to-order basis. But now, to de-risk its revenue model, ATL has initially supplied a small quantity of transformers to private sector last year and is making serious efforts to decrease its dependence on govt orders. As its transformers are in operation for years, the quality and reliability of company’s products is well established. Incidentally company also offers total technical support and customer service throughout the life of the transformers – may it be spare parts or repairing of transformer in case of breakdown.
Being a two decade old company, ATL has set up manufacturing facilities spread across Ghaziabad, Sikandrabad, Greater Noida, Dehradun & Haridwar with an total installed capacity of more than 8000 MVA, which is relatively quite huge. Out of these, Dehradun (600MVA) & Haridawar (2400 MVA) plants are relatively new and enjoy income tax and excise exemptions. However due to high receivable cycle and shortage of working capital, ATL is unable to utilize its capacity and is working at less than 60% capacity utilization. For FY08 it manufactured 12420 nos of transformers against 9999 transformer in FY07. But importantly company is shifting its production focus on higher rating transformers which are less competitive and offers lucrative margin in comparison to lower capacity transformers. In the same direction, company has most probably already developed a prototype sample of 160 MVA power transformer and is looking forward to enhance its capability to manufacture the same at its plant. For this company may implement a small capex of Rs 10 cr in near future to acquire the machinery and technology. Post this up gradation, ATL will be among the handful of companies having competence to make such high capacity transformer. On the other hand, company has even ventured into fast growing 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. Company is trying its best to obtain more such orders and considering the strong govt contacts of the management it may get couple of more projects in future.
Notably, the future prospect of transformer industry looks very robust for atleast next 2~3 years considering the massive investment lined by central govt to achieve the status of power for all by 2012. Under the 11th five year plan, govt intends to add 78500 MW of power generation capacity apart from allotting 28000 MW thru UMPP projects. Historically, with every 1 MW of power generating capacity being added, nearly 7 MVA of transformer is required to compliment it. Besides considerable replacement demand is also generated every year due to aging of old transformers. Moreover, the manufacturers are also required to fulfill the export demand from neighboring countries etc. In short, average demand of transformers for more than 150,000 MVA is estimated annually for next five years. Thus ATL with vast surplus capacity has tremendous scope to grow in future.
Financially, when most of its peers are almost debt free ATL has a huge debt of Rs 40 cr against gross block of Rs 10 cr and company is still looking for sources to further fund its working capital requirement. As it didn’t get the approval from SEBI, company has to cancel its earlier plan of preferential allotment of 31 lakh warrants to promoters. Ironically for FY08, instead of cash generation company reported cash outflow of whopping Rs 20 cr from operating activities. At the same time, company reported unaudited sales of Rs 197 cr for entire FY08 which got reduced to Rs 180 after being audited. Its average receivable period is as long as 5 months with total debtors of Rs 75 cr i.e. equivalent to 40% of net sales. Although company derives considerable sales revenue from trading activity, still it doesn’t disclose it segment-wise. Moreover in 2006, an investigation was carried out by income tax authority against the company and matter is still pending. Despite all such concerns including promoters integrity, aggressive investors can buy this scrip at current market cap of hardly Rs 8 cr. Infact, effectively they are getting this company for free as it holds actual cash of Rs 8 cr as on 31st March 2008. Other positive development is that company has reported better OPM of 15% in the current year against 9% last fiscal. It has already clocked an EPS of Rs 12 till date and with last quarter being the biggest traditionally; it may end up with more than Rs 15 for entire FY09. The sharp fall in copper prices and other input cost augurs well for company, but due to intense competition it has to pass it on to its customers. Share price can easily appreciate 50% within a year.
Being a two decade old company, ATL has set up manufacturing facilities spread across Ghaziabad, Sikandrabad, Greater Noida, Dehradun & Haridwar with an total installed capacity of more than 8000 MVA, which is relatively quite huge. Out of these, Dehradun (600MVA) & Haridawar (2400 MVA) plants are relatively new and enjoy income tax and excise exemptions. However due to high receivable cycle and shortage of working capital, ATL is unable to utilize its capacity and is working at less than 60% capacity utilization. For FY08 it manufactured 12420 nos of transformers against 9999 transformer in FY07. But importantly company is shifting its production focus on higher rating transformers which are less competitive and offers lucrative margin in comparison to lower capacity transformers. In the same direction, company has most probably already developed a prototype sample of 160 MVA power transformer and is looking forward to enhance its capability to manufacture the same at its plant. For this company may implement a small capex of Rs 10 cr in near future to acquire the machinery and technology. Post this up gradation, ATL will be among the handful of companies having competence to make such high capacity transformer. On the other hand, company has even ventured into fast growing 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. Company is trying its best to obtain more such orders and considering the strong govt contacts of the management it may get couple of more projects in future.
Notably, the future prospect of transformer industry looks very robust for atleast next 2~3 years considering the massive investment lined by central govt to achieve the status of power for all by 2012. Under the 11th five year plan, govt intends to add 78500 MW of power generation capacity apart from allotting 28000 MW thru UMPP projects. Historically, with every 1 MW of power generating capacity being added, nearly 7 MVA of transformer is required to compliment it. Besides considerable replacement demand is also generated every year due to aging of old transformers. Moreover, the manufacturers are also required to fulfill the export demand from neighboring countries etc. In short, average demand of transformers for more than 150,000 MVA is estimated annually for next five years. Thus ATL with vast surplus capacity has tremendous scope to grow in future.
Financially, when most of its peers are almost debt free ATL has a huge debt of Rs 40 cr against gross block of Rs 10 cr and company is still looking for sources to further fund its working capital requirement. As it didn’t get the approval from SEBI, company has to cancel its earlier plan of preferential allotment of 31 lakh warrants to promoters. Ironically for FY08, instead of cash generation company reported cash outflow of whopping Rs 20 cr from operating activities. At the same time, company reported unaudited sales of Rs 197 cr for entire FY08 which got reduced to Rs 180 after being audited. Its average receivable period is as long as 5 months with total debtors of Rs 75 cr i.e. equivalent to 40% of net sales. Although company derives considerable sales revenue from trading activity, still it doesn’t disclose it segment-wise. Moreover in 2006, an investigation was carried out by income tax authority against the company and matter is still pending. Despite all such concerns including promoters integrity, aggressive investors can buy this scrip at current market cap of hardly Rs 8 cr. Infact, effectively they are getting this company for free as it holds actual cash of Rs 8 cr as on 31st March 2008. Other positive development is that company has reported better OPM of 15% in the current year against 9% last fiscal. It has already clocked an EPS of Rs 12 till date and with last quarter being the biggest traditionally; it may end up with more than Rs 15 for entire FY09. The sharp fall in copper prices and other input cost augurs well for company, but due to intense competition it has to pass it on to its customers. Share price can easily appreciate 50% within a year.
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