IMP Powers Ltd- Long term Call

Scriptscan-IMP Powers Ltd
CMP-190
Target-300
Duration:9-12 months
Appreciation expected=65%+
Traded on-BSE-NSE

About the company

 

IMP Powers Limited was established in 1961 by Shri Ramniwas Dhoot and is now more than 45 years old Company having two very well established Manufacturing Units at MUMBAI & Silvassa manufacturing entire range of Electrical Measuring Instruments, Testing Equipments, distribution & Power Transformers and has got wide experience in this field.IMP is the only Company having this product conglomerate to give meters, testing equipments, Distribution & Power Transformers and OLTCs all under one Brand name.

Major Strenghts&Weekness:-

Strengths:-

The Company is having vendor approval from almost all the State Electricity Boards, Major Turnkey contractor,consultants and it is the only transformer company in India to be in Zero Sales Tax Zone enjoying 15 year sales tax holiday.

The company topline clientele includes majors such as SIEMENS, L&T, IVRCL, Tata Power, Nagarjuna, Kalptaru, SPIC-SMO, Jyoti Structures and Reliance etc.

The company posses an impresive record of successfully conducting more than 100 Impulse tests & 50 short circuit tests on various rating transformers from 10KVAto 100MVA.

One of the major advantage of the company is manufacturing OLTC & RTCC itself, therefore, only the cost of price of the same is added to the transformer price and thus its prices are most competitive than any other manufacturer who has to add the purchase price of OLTC from other OLTC manufacturer.

WEAKNESS:

Raw Materials -The main raw materials for manufacture of transformers are copper; CRGO, transformer oil and steel stampings are all commodities and hence are subject to fluctuations in prices.,which may affect margins.

Liquidity – Liquidity is always an issue because of delay in payments by SEBs.

High debt equity ratios.

Few recent development=Very recently Funds managed and advised by Motilal Oswal Venture Capital Advisors Private Limited (MOVCAPL) have invested Rs. 190 million in IMP Powers Limited.

With the manufacturing sector growing at a phenomenal rate the demand for Electronic digital measuring & indicating instruments has already crossed over 250 Crores,the Company has just kept its footsteps to this market aiming at a major market share.

Outlook-The opportunity provided by the power transmission and distribution Industry in India is immense.The scenario for the transformer industry is very promising; given the ongoing Government Power Program till 2012.Imp power being one of the oldest player in the power equipments segment with a product portfolio of various types of transformers, industrial meters and testing equipments in the sector will definitely benefit from the huge growth potential in the segment.Moreover, it's buoyant order book position of Rs 1300 million,gives the company an excellent platform for growth.

Prospects

 

To meet the growing demand,the Company currently is undertaking an expansion project with a capital outlay of Rs 280 mn.The project includes expansion of its manufacturing facilities situated at Silvassa ( U.T) from existing 3,600 MVA to 6,000 MVA.The transformer industry has been growing at approximately 25% CAGR for last two years and is expected to maintain this momentum for next 2-3 years. This growth will be driven predominantly by domestic market requirements and partly by exports to the outside world.

Conclusion=The Company has successfully turned around after a bad phase in 2000-2005.Subsequent to the turnaround, it has achieved a CAGR of about 55% in sales over last 2 years. he EBIDTA margins have improved to a current level of 16.6% for FY 07 as against a low of 4.2% in FY 05 because of growth in sales and operational efficiency.This improvement in the margins has come despite an increasing trend in the prices of core raw materials of the company like copper, Aluminium, steel, etc.At the current market price of Rs 190, the stock is available at 9.5x FY08E earnings of Rs 20, which we believe is very attractive.We expect the stock to get re-rated as it starts delivering strong growth numbers over the next few quarters.The stock is currently traded at over 15x FY2007 earnings. We maintain BUY on the stock with target price of Rs.300 for the stock, at 15x FY2008E earnings.It would be prudent to note that,There can be further scope for an upward revision in these estimates given the company's ability to win large projects.

Regards,
ARUN
I can be reached at [email protected]