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Two power plays, one Honda SIEL and other Birla Power, where should one place the bet?
As per CNBC-TV18 analysis, Birla Power commands very high valuations as compared to Honda SIEL. Birla Power has been re-rated in the past few days and a small analysis has been done to present how it is evaluated. The analysis talks about the business of Birla Power and Honda SIEL. Honda SIEL is the leading market player in the Industry. And both are small cap stocks. The market cap is Rs 156 crore for Birla Power and Rs 230 crore for Honda SIEL.
The core business of Birla Power are electrical appliances like pump sets, inverters, batteries and portable generators. Birla Power is performing well. The numbers indicate that it is doing pretty well in the last couple of quarters. Sales figures indicate that it is up 14% QoQ and up by 35% YoY, When the market leader is losing its sales down by about 8% QoQ and 5% YoY. The PAT numbers, which does not include the other income, is up about a meagre 4% but very robust 61% YoY. Honda SIEL has lost almost 70% in the PAT.
Coming to operational margins, because of better raw material cost, better personnel cost and managing personnel cost, Birla Power has seen that it has been able to manage margin cost by almost 10.3% YoY and has significantly improved its margin over the last quarter by about 170 basis points. On the other hand, Honda SIEL has lost on the operating margins with almost 470 basis points if you compare YoY.
As per the realisations of the generators, which is a non-core business for the Birla Power and core business for Honda SIEL, the realisation is almost Rs 44, 000 per unit in case of Birla Power and Rs 24, 000 for Honda SIEL. As per the evaluations of these companies, Birla Power is quoting ahead of 25 PE for the current financial year and 21 PE for the next financial year and the Honda SIEL stands at 13 and 30 respectively.
If you look at the performance in the last few days, the one-week performance has been stupendous at about 49% and one-month performance at almost 89 % with Honda SIEL giving a negative return for both these time periods. If you look at the three-month figure, it’s almost up by 100% and 121% for a six-month period.
Birla Power has been giving a stupendous performance. Coming to a fundamental question as to whether one should go into the stocks right now. A direct answer can’t be given right now but then the fundamentals of the industry look very strong. There is going to be power cuts in the country. People would be using generators. There is going to be more investment in the infrastructure. So while constructing the building, there needs to be usage of pump sets and after the infrastructure is constructed, there need to be more generators. So the fundamentals stay good and also the levers has been very good. But as against it, the performance consistency has not been seen and currently analysts believe that the valuations are catching up with the fundamentals rather than the opposite.
Birla operates at one third the capacity utilization of Honda Siel, which operates at 60 –70% market share. With one third of capacity utilization, the realizations are double at what the market leader is and the cost pressures have consistently gone down on QoQ and YoY basis and that of Honda’s is going up.
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