In A Powerful Orbit - EMCO

We had recommended Emco to our investors in Issue No 9 dated April 13, 2009 in the Analysis column at Rs 40.45 on the grounds of good valuations and better earning visibility. Post our recommendation the counter went up to Rs 58.15 providing an upwards return of 43.75 per cent. At a CMP of Rs 52 the scrip is currently at 30 per cent above the recommended price. The reasons for recommending the scrip included its diversification into T&D and generation space, thereby spreading its business risk and secondly, the company is expanding its capacity base (domestically and internationally) to cater to the future growth in demand.

Emco is the third largest transformer manufacturing company in India and a leading player in the 400 KV transformer space with an annual capacity of 20,000 MVA. Emco also manufactures meters and has a presence in EPC projects in the T&D space. Its transformer segment contributes about 65 per cent to the revenues, while the rest is contributed by the other businesses.

Its acquisition of Baroda-based Urja Engineers will take the transmission tower manufacturing capability to 45,000 MT, thus giving the company an upper edge in terms of providing 400 KV transmission lines along with its 400 KV transformer manufacturing capability. Furthermore, Emco has formed a 51 per cent JV with the Edison Group of South Africa to manufacture and market transformers to cater to the South African market and its neighboring countries. The company plans to install 2,000 MVA transformer capacity at this facility. This would help the company to meet its aim of enhancing export business from 16 per cent to 30 per cent in the coming years. With the scrip providing a decent return at current levels, our advice to investors is to book partial profit on this counter. We believe that the company has good potential and it can outperform our expectations. However, exposure could be availed of again if the counter corrects again and comes closer to our recommended price.