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The primary seems to experience a change with second fixed price issue in the same fortnight. This time Indo Tech transformers Ltd is coming out with an IPO of 39.45 lax shares of Rs. 10 each at a fixed price of Rs. 130 per share. Out of the total issue size, 29.56 lacs would be the fresh issue and rest 9.88 lac would be offered for sale. With this issue size the company is expected to raise about Rs. 51.29 crore. The company will utilise about 75 per cent of the proceeds from the issue for the proposed expansion and modernization of the plant. The company came into being in 1992 and is currently into manufacturing of power transformers and distribution transformers with individual contribution of 76 per cent and 24 per cent respectively to the total sales in FY05. Recently it has ventured into high power transformers up to 220KV. Currently it has three production units our of which two are in Chennai and one in Kerala. Its total capacity is 2450MVA and Thirumazhisai plant in Chennai, which is eight years old, contributes 73.5 per cent of the total capacity. Its customers are State Electricity Boards, EPC contractors and corporates with contribution of 63.08 per cent, 17.29 per cent and 18.52 per cent respectively to the total revenues of FY05.
Tamil Nadu Electricity Board alone contributed 40.06 per cent to the revenues for the last financial year. Its EPC contractors are L&T, ABB, Reliance Energy, etc and corporate customers include Taj Group of Hotels, Sanmar Group, Lakshmi Machine Works, etc. Last year 1.11 per cent of revenues came from exports to various countries like U.K., U.S.A., Nigeria, Ghana, etc. It has executed order for North American market for mobile transformers and substation transformers. It has exported about 600 transformers to Nigeria, UK, USA, Ghana, etc..
Since inception it has supplied 55,000 transformers of different capacity to over 3,000 customers in India. Its current market share is 7 per cent in organized sector. It has stiff competition from competition from competitors like BHEL, EMCO, Bhrat Bijlee, etc, which are largely present into the transformer business. The company imports raw materials like CRGO insulator that contributes 30 per cent to the material cost. Copper contributes 28 per cent to the total material cost and is dependent upon international price. .
The objective of this IPO is to relocate and modernize its Saidapet plant in Chennai into new distribution transformer plant of RS. 750MVA/annum at Thrirumazhisai, Chennai that will cost Rs. 7.5cr. It is also going to setup a new power transformer plant with a capacity of 2400MVA.annum including 220KV class of transformer, which is considered to be high power transformer. The site for this new project is yet to be finanlised. The cost of this project would be Rs. 30.6 crore. All these projects would cost Rs. 43.5 crore and would be completed in coming two years.
Currently the existing plants are running at 77 per cent of capacity utilization and are expected to maintain the level even after expansion. After these expansion projects the company will lose the status of SSI, as a result of this their effective tax rate will go up, but its effect on bottom line would be nominal. The company’s top line in FY05 was at Rs. 81.17 crore which grew by 28.17 per cent over FY04. Also operating profit grew by 79.66 per cent in 2004-05 to Rs. 12.29 crore. The net profit of the company increased by 96 per cent to Rs. 7.98 crore in FY05. Company’s operating profit margin for FY05 was at 15.15 per cent, which was better than the industry average of about 11 per cent. In FY05 was its inventory level increased by almost 85 per cent due to worldwide shortage of CRGO lamination. CRGO lamination is an important raw material required for the lamination. As of September 05 the debt equity ratio of the company is 0.13 with zero term loans in the books of account. It is planning to raise term loan of about Rs. 10 crore from SBI for part financing the proposed expansion plan. The company’s sales in H1FY06 were at Rs. 49.64 crore and net profit was Rs. 4.8 crore. Company has order book of Rs. 136 crore, which is to be executed in the coming 10-12 months. The current PE of the company at price of Rs. 130 per share would be 17.28. But considerable improvement in the future earnings based on capacity expansion and current order book, the chances of decent appreciation in price could not be denied. With the bright prospect of power sector and the company’s plan to double its capacity, we recommend investors to invest in this issue.
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