Wednesday, November 30, 2011

Investment Idea: EON Electric

Ashish Chugh, Investment Analyst & Author of Hidden Gems shares his view Eon Electric . Chugh told CNBC-TV18, "In this kind of a market you have companies which are trading well below their cash values and Eon Electrics is one of them. This company had the 3 business divisions. This company sold the switchgear division to Legrand of France about a year back and realized an amount of Rs 400 crore from that sale." He further added, "Now after the deal was announced the stock price has fallen by about 75% from about Rs 150 which it touched after the deal got announced and currently trades at close to Rs 38-40. This is primarily on account of the fact that even though this company got realization of more than Rs 200 net of tax per share, the shareholders got just about Rs 10 as dividend." "Now you have one set of companies where there has been a massive increase in shareholders valuation, company like Andhra Paper where the promoters have chosen to sell the company as against selling a business and all the minority shareholders have been benefited by way of the open offer made by the acquirer. On the other hand you have another set of companies where the promoters have chosen to sell a part of their business even though that business was contributing 85-90% of the revenues. Companies like Zicom, GC Venture, Laffans Petro, Smartlink, where the shareholders value has been badly eroded primarily on account of the fact that there is a concern whether the money which has come from the sale will actually flow to the benefit of the shareholders. Eon Electric is no exception." "Eon Electric has got cash and cash equivalents of roughly Rs 300 crore. Company is totally debt free and after the sale of switchgear division, this company is left with cable and lighting business. The gross block is about Rs 58 crore where the market cap of this company is just about Rs 70 crore at the current price and leave aside the residual businesses and the assets which are left, this company has got cash – the market cap is just about less than 25% of the cash it is holding." "I think with these kinds of valuations the investors have probably got reconciled to the fact that this cash, which has come in, may not really flow towards a benefit of the minority shareholders. There is definitely a concern that this cash may not be put to good use but I think at the current market price those concerns have probably got fully factored in on the price." "Any steps now by the management which changes a perception and gives a feeling to the minority shareholders that this money may actually be utilized for value creation and for benefit of all shareholders and not just the promoter, shareholder group or may be if the promoters decide to give more dividend to the shareholders, I think those things may lead to a rerating in the stock price. Whether that happens or not I think only time will tell and that is anybody’s guess at that point of time. I believe the negatives are probably priced in at the current market price of the stock."
Source: Internet (By Ashish Chugh)

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