Genus Overseas Electronics Ltd.

CMP Rs210

Rating: BUY

Genus Overseas Electronics Ltd. (GOEL) is amongst the largest electronic meters manufacturers and the pioneer in implementing AMR technology in metering. GOEL stands to be the largest beneficiary of the on going Accelerated Power Development and Reform Programme (APDRP), under which the government intends to implement 100% metering. It recently announced its Q2FY07 results with its topline and bottomline registering growth of 105.2% and 88.1% respectively. Its order book stands at Rs4.9bn, which comfortably covers it for remaining two quarters of FY07 and partially for FY08. Huge investments announced by the government in the sector coupled with the company’s foray into execution of power distribution projects provides clarity to our belief of robust growth for the company in future. With the company’s focus being on selling more of three phase meters we expect margins to improve to about 13.9%.

Recently the company announced the formation of a JV with Mobix, a Brazilian company, for setting up a base in Latin America. The transaction involves an investment of US$15mn of which about US$9mn will be raised through debt from banks in Brazil and the rest will be through equity by both firms. Mobix is a leader in communication technology. This JV will enable the company to improve upon its AMR solution for meters, as it requires the backing of communication technology. At present Mobix Wireless Solutions sells GOEL’s products in North and South America as well as in other countries. At a CMP of Rs210, the stock is currently trading at 10.5x and 7.2x its FY07E and FY08E earnings of Rs19.6 and Rs28.9 respectively. We initiate coverage on the stock with a BUY rating and a price target of Rs289 over the next 12 months.