EMCO
Reco Price: Rs 95
Target price: Rs 115
Upside: 26%
Brokerage: Sharekhan
In FY2009, Emco booked Rs 7.96 crore of loss in forex, adjusting for which the company’s operating performance was better. The transformers division reported 1.9 per cent increase in volumes during the year while the realisation dropped by 2.2 per cent y-o-y on account of a fall in commodity prices.Recently, CESC has acquired 50 per cent stake in Dhariwal Infrastructure that is setting up a 600 MW power plant. Taking this deal as a benchmark, Emco should have been able to garner close to Rs 350-400 crore for its subsidiary Emco Energy.
Emco has currently invested Rs 43.5 crore in the subsidiary. If this is true, Emco could actually partially pay off of its debt on books easing the company’s financial cost and boosting its profits. Assuming the repayment of the advanced amount, earnings for the stand-alone entity could increase by 5-10 per cent.
The brokerage has upgraded earnings estimates by 4.4 per cent to Rs 11 in FY2010. Further, it has not factored in any cash flow from the sale of the plant, which would be an upside to current estimates. Emco is fast emerging as a strong end-to-end solution provider in the power transmission and distribution (T&D) space in the country. It feels the order inflow for the company would remain robust with the spending in power T&D space expected to remain buoyant.
The company is expected to report a CAGR of 17.3 per cent and 19.4 per cent in the turnover and the net profits respectively over FY2009-11. At the recommended price of Rs 95, the stock trades at 8.6 times and 7.4 times FY2010 and FY2011 estimated EPS respectively.
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