EMCO Ltd.
EMCO Ltd.’s topline is expected to witness a 46.3% CAGR over FY06-09E backed by a robust order book of Rs10bn, 2.5x FY06 revenues. Transformers constitute 70% of the order book followed by projects at 27% and meters at 3%. This order book is executable over the next 12 months providing visibility for FY07 and FY08. Its order book of Rs2.7bn is executable partly during the quarter and the remaining during FY08. The division is expected to register 29.6% CAGR over FY06-09E.
Majority of the revenues accruing to the company will be contributed by the transformers division where margins are expected to improve due to better realizations. It practices normal hedging techniques and enters into price variation clause for majority of its contracts, which helps it to insulate its margins.
EMCO plans to enter into switchgear manufacturing coupled with power
generation in order to derisk its existing business model. It intends to set up a 135MW coal based thermal power plant at Chandarpur, Maharashtra. Power generation will come under a separate entity EMCO Energy Ltd whereas switchgear will be under EMCO Ltd. Its admission into this field will make it an integrated power player.
With faster execution of orders, strong order intake and improving margins from 12.8% in FY06 to 13.5% in FY07E, provides significant upside to the company’s bottomline. We expect the company’s topline and bottomline to grow at 46.3% and 68.4% CAGR respectively over FY06-09E. We maintain a BUY on the stock.