M and B Switchgears - Time to book profits
Srujani Panda / 21 Oct 2011
M and B Switchgears (MBSL) issued an IPO on September 28, 2011 within a price band of Rs 180-186 and settled for the upper price of Rs 186 per share. The scrip listed on 20th Oct 2011 at a price of Rs 176 on the BSE, but then it surged and ended at Rs 317 (premium of 71 per cent).
One can ask if it is really worth entering the scrip at such CMP and in such a volatile market. Well in our New issue analysis (DSIJ Issue no 21, dated 09 October 2011) we had clearly said that its bigger peers, Transformers and Rectifiers and Voltamp transformers who have larger capacities are available at a market cap of Rs 288 crore and Rs 504 crore respectively.
After the listing MBSL stands at the market cap of about Rs 593 crore which is double than that of Transformers and Rectifiers and about 1.2 times higher to that of Voltamp Transformers. Comparing to the sales turnover MBSL stands no where close to its peers. Its sales turnover for FY11 stood at Rs 34.01 crore, while that of Transformers and Rectifiers and Voltamp transformers stood at Rs 533 crore and 526 crore respectively for the same period. We believe that at this market cap and sales turnover company is priced substantially high.
We remain bearish on this stock mainly because its promoters are foraying in to entirely new business of power generation where they do not have any experience. Beside in the existing business company’s client concentration remains very high with 70 per cent of the revenues coming from its top 3 clients.
We also see debt going up substantially high (64 per cent of total income as on 7MFY11). Promoters of MBSL themselves have their own companies into the transformers manufacturing which may create conflict of interest in future.
Coming to the power generation, company has not bought any equipment for its 2MW project and is yet to fund this project fully. For the proposed power plant (4MW), company has acquired 14.467 hectares of land and has placed orders for the equipments. The major concern that we believe is that no power purchase agreement (PPA) has yet been signed for both the capacities. The 6 MW solar power capacity is a very small capacity compared to the large thermal capacities which are coming in the country. Since PPA has not been signed, we expect company to sell the power through merchant route which are rated between Rs 4-5 per unit. Given the high cost of power generation through solar plants, we believe there are more headwinds ahead for the company.
For those who have taken exposure to this stock, can book the profit and exit the counter.
About the M and B Switchgears:
MBSL is engaged in the business of manufacturing and distribution of different transformers. Company is now entering the business of power generation and setting up a 2MW solar power plant. Out of the 93 crore that company collected through this IPO, Rs 71 crore will be used towards setting up a 4MW solar power plant at Gagorni, Rajasthan. The remains will be used for general corporate purposes.
One can ask if it is really worth entering the scrip at such CMP and in such a volatile market. Well in our New issue analysis (DSIJ Issue no 21, dated 09 October 2011) we had clearly said that its bigger peers, Transformers and Rectifiers and Voltamp transformers who have larger capacities are available at a market cap of Rs 288 crore and Rs 504 crore respectively.
After the listing MBSL stands at the market cap of about Rs 593 crore which is double than that of Transformers and Rectifiers and about 1.2 times higher to that of Voltamp Transformers. Comparing to the sales turnover MBSL stands no where close to its peers. Its sales turnover for FY11 stood at Rs 34.01 crore, while that of Transformers and Rectifiers and Voltamp transformers stood at Rs 533 crore and 526 crore respectively for the same period. We believe that at this market cap and sales turnover company is priced substantially high.
We remain bearish on this stock mainly because its promoters are foraying in to entirely new business of power generation where they do not have any experience. Beside in the existing business company’s client concentration remains very high with 70 per cent of the revenues coming from its top 3 clients.
We also see debt going up substantially high (64 per cent of total income as on 7MFY11). Promoters of MBSL themselves have their own companies into the transformers manufacturing which may create conflict of interest in future.
Coming to the power generation, company has not bought any equipment for its 2MW project and is yet to fund this project fully. For the proposed power plant (4MW), company has acquired 14.467 hectares of land and has placed orders for the equipments. The major concern that we believe is that no power purchase agreement (PPA) has yet been signed for both the capacities. The 6 MW solar power capacity is a very small capacity compared to the large thermal capacities which are coming in the country. Since PPA has not been signed, we expect company to sell the power through merchant route which are rated between Rs 4-5 per unit. Given the high cost of power generation through solar plants, we believe there are more headwinds ahead for the company.
For those who have taken exposure to this stock, can book the profit and exit the counter.
| Particulars | M AND B Switchgears Ltd |
| Recommendation | Sell |
| Price band | Rs 180-186 |
| Issue price | 186 |
| Shares offered | 0.50 crore Equity shares |
| Subscription | Oversubscribed |
| Total | 1.57 |
| QIB | 1.03 |
| Non institutiional | 1.56 |
| Retail investors | 2.35 |
| Listing price | 176 |
| CMP | 381.05 |
| BSE Code | 533644 |
| Percentage gain (loss) on listing | -5% |
| Percentage gain (loss) at CMP | 105% |
| Date of listing | Thursday, October 20, 2011 |
About the M and B Switchgears:
MBSL is engaged in the business of manufacturing and distribution of different transformers. Company is now entering the business of power generation and setting up a 2MW solar power plant. Out of the 93 crore that company collected through this IPO, Rs 71 crore will be used towards setting up a 4MW solar power plant at Gagorni, Rajasthan. The remains will be used for general corporate purposes.
If you want to stay updated with the share market news today, keep a close watch on the indian stock market today with real time movements like sensex today live and overall stock market today trends. Investors tracking ipo allotment status, ipo news today, or the latest ipo india can also follow daily updates along with bse share price live data. Whether you are learning how to invest in stock market in india, preparing for a market crash today, or searching for the best stocks to buy in india, insights on top gainers today india, top losers today india, trending stocks india and long term stocks india help in making informed investment decisions.