Investment Analyst, Ashish Chugh is of the view that Electrotherm is a safe stock to invest in the current market.
Chugh told CNBC-TV18, "Currently Electrotherm is trading at about Rs 530-540 and it can go to Rs 800-1000 maybe even Rs 2,000. It is primarily into three businesses. This company was into the engineering business where it used to manufacture induction-heating furnace. This engineering business of the company is the oldest business; this is where the company started from, and they are the leaders in the manufacture of induction furnaces having the highest market share. They have installation of more than 1500 induction furnaces."
He further added, "The steel division of the company was more of a forward integration worth for this company. Since this company was already manufacturing induction-heating furnace, which has used in the steel industry and also other equipment, it set up a steel plant at a much lower cost. This company manufactures various kinds of steel like tmt bars, ductile iron pipes, stainless steel, sponge iron. It has got a fully integrated plant, which is located at Kutch district of Gujarat."
"This company is also setting up a 30-megawatt captive power plant, which is going to use the waste gases from the sponge iron plant and this plant is also illegible for carbon credit. The auto division of the company manufactures Yo bikes, which is a two-wheeler, battery-operated two-wheeler, this plant has got a capacity of about 1.5 lakh units. This company has already established a nationwide network of dealers for selling these two-wheelers. They have a dealer network of more than 150 and they are aggressively adding more dealers. The good thing is that the auto plant of the company and the steel plant of the company are both located in the Kutch district where they get benefit of sales tax, excise and income tax, and also there plants are located very close to Kandla port, which is an additional advantage as far as the logistics is concerned."
"In the first half of the current financial year this company has already achieved sales of about Rs 515 crores, which are up by about 125% over the same period last year, profit after tax (PAT) is up by about 80% to around Rs 25 crores. For full year we expect the company to deliver sales of between Rs 1100-1200 crores that can be in the region of Rs 60-65 crores, which means an EPS of Rs 60 at the current price of Rs 530-540 it is available at a price to earning ratio of 9."
"This company has received funding from various prominent institutions; IFC Washington and ICICI Ventures have invested in this company. IFC Washington has subscribed to FCCB issue and ICICI Venture has taken a stake in the company at Rs 600. The management has also taken warrants in the company convertible into shares at Rs 600."
"The electric bike division of the company has a very good potential. If you take a look at the sales figure of electric bikes in India and compare it with the countries like China you find a huge differential. Last year India sold about 1-lakh electric two-wheelers as against 10 million, which are sold annually in China. So there is a huge untapped potential as far as the two-wheeler division of the company is concerned. This company is also planning to launch Hybrid buses and battery operated three-wheelers, which are still in the testing stage and maybe couple of months or couple of years down the line this company may do a commercial roll out of these products."
"The current expansions, which are going on they are capable of leading to a revenue of between Rs 1,800 crore to Rs 2,000 crore, which we expect the company to do in the FY08-09. Traditionally, this company has done operating profits of close to14-15%. So 14% to 15% operating profit on sales of Rs 1,800 crore if we take on the lower band, equity of the company is just about Rs 9.13 crores as of now, which may go upto between Rs 12 crore to13 crore on the conversion of promoters warrants into shares and also conversion of FCCB (Foreign Currency Convertible Bond) into equity shares. So on a fully diluted equity of between Rs 12-13 crores, the company is doing a operating profit of maybe about Rs 250-300 crores and is available at a marketcap of just about Rs 450 crores. In the current market it looks to be a very safe stock to invest in."
Source:moneycontrol.com
