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Dec 10, 2007, 04.48 PM IST | Source: Moneycontrol.com

Majority experts say apply for Transformers IPO

Transformers and Rectifiers, manufacturer of wide range transformers, has opened for subscription with an IPO of 29,95,000 equity shares of Rs 10 each. Moneycontrol conducted a poll on market experts to check whether to apply for the public issue or not. Majority of experts said apply.

Transformers and Rectifiers (India), one of the major players in the Indian market manufacturing a wide range of transformers ranging from power generation, transmission, distribution transformers, industrial transformers and a wide range of speciality transformers, has opened for subscription with an initial public offering of 29,95,000 equity shares of Rs 10 each for cash at a premium to be decided through a 100% book-building process. The issue will close on December 12, 2007. The price band is between Rs 425 and Rs 465 per equity share.

Moneycontrol conducted a poll on market experts to check whether to apply for the public issue or not. Majority of experts said apply.

Experts/Company

Poll Result

Experts view

R S Iyer

(KR Choksey)

Apply

Transformers and Rectifiers is an excellent issue. One can apply for the issue at cut off price. It is good for listing gains as well as for long term.

Manish Bhatt

(Prabhudas Lilladher)

Apply

The company has order book of Rs 3.6 billion. It manufactures transformers upto 220 kV Class, having an installed capacity of 7,200 MVA transformers per annum. The company is raising money for enhancing capacity to 400 KV class transformers with 16000 MVA per annum.

 

It has reported revenues CAGR of 66% from 2003-07, EBITDA by 523 basis points and PAT CAGR of 64% in same period. It is an excellent issue. One should apply for the same.

SP Tulsian

(Investment Advisor)

Don’t Apply

 

Transformers And Rectifiers (India) is setting up a new plant of 220 kV and 400 kV class with a capacity of 16,000 MVA per annum with estimated outlay of Rs 67 crore. Rs 35 crore is earmarked for enhanced working capital requirements. In transformer industry, though capital cost is low, it has huge working capital requirements, due to longer credit availed by its buyers like State Electricity Board. The debtor cycle is generally of 4 months. The new plant would be partly operational in FY 09.

 

The growth of the company in FY 08 is lower against industry and peer growth. Based on H1 results of FY 08, the topline of the company maybe about Rs 280 crore with PAT of Rs 28 crores which would translate into an EPS of Rs 28. Based on this, and at the upper band of Rs 465, the share is issued at abut 17 PE multiple.

 

When we compare this with listed peers, this looks almost fully priced, thus leaving very little room for appreciation. Indo Tech Transformers, having highest EBITDA margin in the industry is likely to post an EPS of Rs 42 for FY 08 and share is now ruling at Rs 700, resulting in a PE multiple of 17 times. Bharat Bijlee is likely to post an EPS of Rs 150 for FY 08, rules at Rs 3,440, resulting in a PER of 23 times. Voltamp Transformer is ruling at PER of 21 if EPS of Rs 85 is considered for FY 08. Though Voltamp and Bharat Bijlee are quite large compared to the company, Indo Tech could be the right companion.

 

Indo Tech has also been carrying out expansions and raising its operations with improved profitability. It is available at a same PER of 17 in the secondary market, hence the issue at PER of 17 looks expensive. However, promoter’s stake of 77% instills confidence against 54% held in Indo Tech Transformers. The track record of the promoters also needs to be closely watched, post IPO.

 

The company falls in highly fancied sector of Transformer, which is discounted favourably by the market. But issue at upper band of Rs 465 is issued at a PE multiple of close to 17, leaving very little room for appreciation. Similar plays are available in the secondary market almost at the similar valuations. So, where is the room for appreciation for new set of investors?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The equity shares are proposed to be listed on the Bombay Stock Exchange and the National Stock Exchange.
 
The issue includes a reservation of 150,000 equity shares for eligible employees and the net issue to the public will be 28,45,000 equity shares. The issue will constitute 23.17% of the fully diluted post-issue paid-up capital of the company and the net issue will constitute 22.01% of the fully diluted post issue paid-up capital of the company.
 
The objects of the proposed Issue are to finance the setting up of the proposed greenfield manufacturing facility at Moraiya, near Ahmedabad, Gujarat, for manufacturing transformers and to part-finance incremental working capital requirements.
 
The company manufactures transformers upto 220 kV Class, having an installed capacity of 7,200 MVA transformers per annum. It currently operates through two manufacturing units, located at Changodar, near Ahmedabad and Odhav, in Ahmedabad, both in Gujarat.

Enam Securities Private Limited is the sole book running lead manager to the issue.

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