IPO price justified by huge biz potential: M&B Switchgears

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IPO price justified by huge biz potential: M&B Switchgears

Anurag Mundra, Whole Time Director of M&B Switchgears in an interview to CNBC-TV18 said the high price of IPO is justfied because the renewable energy business offers huge potential in the long run.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show » M and B Switch BSE | NSE 24/05/12 Are Mutual Funds betting on M and B Switch?

The 50-lakh equity shares' IPO of Transformer manufacturer M&B Switchgears opened for subscription today. Anurag Mundra, whole time director of M&B Switchgears in an interview to CNBC-TV18 said the high price of IPO is justfied because the renewable energy business offers huge potential in the long run.

"If we factor in all the prospects brought about by solar energy, it's a good investment opportunity for a long-term proposition," he said.

The company plans to raise more than Rs 90 crore through the issue by diluting 25% post issue. It intends to use funds for setting up new grid connected 4 MWp solar photovoltaic power plant in Madhya Pradesh.

The company is hopeful of commencing generating power from this 4MW plant in March 2012.

Also Read: Govt may put divestment plans on hold, revise targets

Below is the edited transcript of Mundra's interview with CNBC-TV18. Also watch the accompanying video.

Q: A lot of voices have been raised against your pricing. You are pricing the share between Rs 180 and Rs 186 that means your total market cap is something like Rs 360 crore. For that kind of market cap your sales of the last five years itself is coming only to Rs 120 crore. Isn't it a tall price?

A: Till now we were manufacturing transformers and now we are venturing to solar power generation. It's written on the wall that this and the next decade will be of renewable energy. If we factor in all the prospects brought about by solar energy, it's a good investment opportunity for a long-term proposition.

Q: Are you taking Rs 90 crore from the market or around that amount, what will you do with it?

A: Around Rs 68 to Rs 70 crore will be invested in a 4 megawatt polycrystalline solar generation power project grid-connected. Rest of the amount would be used for issue expenses and general corporate purpose.

Q: One of the criticisms raised with regards to the IPO is that a) the company lacks experience within the solar power space and b) that the company has not entered into any power purchase agreement for the sale of the power generated from its 2 megawatt project as well as its 4 megawatt project. Would you like to comment on these two issues?

A: Yes. If you bifurcate there are two areas in solar power generation. First is generation of electron on a module and second is taking out that module and putting on the grid. M&B has an experience in the second part. For the core technology of solar power generation we have tied up with the Tata BP Solar who are the leader in solar power industry in this country. These two companies synergize very well.

Q: It is just that you don't already have any power purchase agreements for the sale of power generated or once you enter into solar power space more aggressively. Could you comment on that?

A: As per the Electricity Act any solar power generator or for that matter any power generator can sell their power to any third party. They can bank it. They can sell to the government. There is no requirement to enter into the power purchase agreement right now. However we are in advance stage from some big companies who would be willing to purchase from our solar power generating units.

Q: When will you be generating power?

A: For this 2 megawatt project we will be generating power in the month of November. For the 4 megawatt project for which the IPO is planned, we will be generating power in the month of March 2012.