Buy Leel Electrical: SP Tulsian

If you see, the deal has consummated only in the middle of May; the company got Rs 1,550 crore from Havells for sale of their consumer durable only in the middle of May. So they have not given any effect of the profits or reduction or booking of profits or utilisation of the funds, etc. in Q1 numbers. By footnote company has said that it will be given effect in the due course and I expect that that will happen in Q2.

However, if you see the Q1 numbers, in fact I observed very interesting things that there is a change in inventory of work in progress and stock in trade of Rs 341 crore that is as an expense. So what I feel that this is on account of the consumer durable sales because whenever you lock stock and barrel, you monetise the entire division, you get out of the current assets also in which you write off a huge amount.

So this Rs 341 crore charging to the P&L account as a raw material cost is seen to be an adjustment or cleaning up of the books because of the remaining two business if you take, OEM and packaged AC business, their EBIT is Rs 26 crore against Rs 27 crore of the same quarter last year. Heat exchanger had an EBIT of Rs 17 crore against Rs 16 crore. That means there has been virtually no effect to their existing two business which are seen to be quite precious.

If you see, going forward the company has a working capital loan of about Rs 750-800 crore. Of this Rs 1,550 crore, Rs 100 crore has been paid by the company as special dividend. Even if I presume Rs 300 crore as tax liability or Rs 200 crore as an exceptional write off, though the major stock has been written off in this P&L, I expect that company will remain with a net of cash of about Rs 500 crore, book value will rise to about Rs 350 crore, company should be able to post an EPS of Rs 20 going forward on a consistent basis on the reduced level i.e. after hiving off the consumer durable business.

So, taking all this into consideration, I think market is not paying any attention to all these things. Share is available at P/E multiple of maybe 8-8.5, price to book of 0.5 and taking all this into consideration, share is ruling at about Rs 178 can move to a level of Rs 215 in next six months or so while it has a long term prospects as well if someone holds for couple of years this stock in his portfolio.