Indiainfoline - EMCO

EMCO Ltd CMP Rs711 BUY

EMCO Ltd., one of the leading players in the power and distribution transformers industry commanding about 12% market share ranking third after BHEL and Crompton Greaves. It is the market leader in special transformers like furnace and rectifier transformers. It has the widest range of oil filled transformers spanning from 500KVA/11kV to 315MVA/400kV with its presence in power, distribution, furnace, rectifiers and loco transformers. About 75% of the company’s revenues come from its transformer division of which distribution transformers contribute 60-70% and the remaining comes from the power transformers. The company also has its presence in the electronic meters and undertakes EPC projects too. It offers a range of metering solutions including automatic meter reading solution and prepaid meters for single phase and polyphase applications.

EMCO recently enhanced its transformer capacity to 10,000MVA during FY06 from 8,500MVA in FY05. It is debottlenecking its facility inorder to further enhance its capacity to 15,000MVA, which will come onstream by FY07. It also plans to add another 5,000MVA to this capacity by the end of FY08. It sells about 75% of its transformers to the SEB’s which have an in built escalation clause. Out of the remaining revenues from the division 15% is contributed via exports and the balance from sale to industrial clients like Tata Power, Suzlon, Siemens, L&T etc. In its efforts to derisk its business model the company plans to increase its share of exports to 30%.

The company has on order book of Rs8.1bn, which is to be executed over the next 12-18 months. The company is planning to venture into manufacturing of switchgears and setting up a power generation plant. It is working upon the funding mix for the same. The power plant will be under a separate entity EMCO Energy. We recommend a buy with a long term perspective.