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Tuesday, March 17, 2009

Nelco Ltd:-Tata managed under researched gem

Management:TATA Group
Traded on=BSE-NSE(both)

Background=The National Radio & Electronics Company (NELCO) was promoted in 1940 by the Investment Corporation of India, inter alia,to manufacture broadcasting equipment.It introduced telebanking in the nationalised banks and computerised more than 65 branches of 28 banks all over India. It also introduced India's first LANinter-connectivity products. NELCO transferred its business systems division to a new subsidiary -- Nelito Systems, formed in association with Itochu Corporation, Japan. NELCO has been selected by Chittararanjan Locomotive Works for power control and auxillary equipment of 6000 HP AC locomotives.

Introduction:Nelco is Tata group telecom equipment company engaged in the busness of operations focussed on manufacturing and selling consumer electronic products, business systemsand office products. It has technical collaboration/technical transferagreements with Serck Control, UK, for 16 RIT industrial micro computers;and with Teleglobe,Canada, for data communication networks.The company launchedtele-banking in nationalised banks.It also introduced India's first LAN inter-connectivity products.Nelco has diversified its activities in the electronic field andmanufactures televisions, computers and telecommunication systems, as well asindustrial systems.It plans to set up a new factory to manufacture and sell telecommunication systems.

Product Divisons:-

Strategic Electronics (SED):This division provides products, systems and services to Defense and Paramilitary Organizations for Security and Surveillance, such as unattended ground sensors (UGS), Security systems, Global Positioning Systems (GPS) etc. It also provides Integration and sub-contract services to Prime Defence Contractors.

Supervisory Control and Data Acquisition (SCADA):This division provides products, systems and services for Supervisory Control and Data Acquisition systems and Energy Management Systems to Utilities,Railways, Oil and Gas production etc.

Drives Systems and Traction Electronics:The Drives group provides integrated AC & DC drives systems and related services for Metal,Mining, Power, Paper and Process industries for energy optimization,control and automation.The Traction group provides Power and Auxiliary converters to Indian Railways for their 3-phase locomotives.

Tatanet Network Systems:This division provides management of network connectivity services over VSAT (Very Small Aperture Terminals using satellite communication technology) for large and medium Corporate, Broking Houses, and small and medium enterprises. It also serves as a turnkey supplier and systems integrator for specific VSAT projects of Government and PSU undertakings.

Property Development:This activity consists of development of part ofthe property at Andheri with the assistance of Tata Housing Development Company Limited (THDC).

Outlook Of The Divisons:-

Strategic Electronics(SED:Nelco's initiatives to penetrate the lucrative and niche market for security and surveillance systems for the defence forces is expected to yield immense benefit to the company.With the continued emphasis on increased surveillance and securing of the borders, budget outlays are being made leading to an increased demand for SED products and services. In addition, greater involvement of the private sector is also being encouraged.Thus, Based on the successful installation of UGS along the critical border, SEDis most hopeful of securing further orders for MoD for UGS to secure these sensitive borders.

Supervisory Control and Data Acquisition (SCADA):The SEBs have been plagued with a high level of transmission & distribution(T&D) losses due to a lack of investment in the T&D systems. To reduce these T&D losses (which are in the range of Rs21,000 crore), the government introduced the Rs40,000-crore APDRP fund in the 10th Five-Year Plan. Thus, the size of the opportunity is immense.

Drives Systems and Traction Electronics:The demand for the Drives system is expected to grow immensely due to high growth the key user industries of steel and cement and a higher demand from the replacement as well as the expansion projects.The growth has also been aided by the company''s ability to penetrate the overseas market.Nelcohas bagged huge orders for multi-voltage drive systems from the cement manufactures in the Middle East region.Due to the growth in industrial activities, Railways are also witnessing an increased movement of goods leading to increased demand of locomotives. It is expected that demand of these products and systems will rise considerably due to the increased manufacturing of locos by Indian Railways in the current and in the years ahead.

Tatanet Network Systems:Tatanet has re-positioned its offerings under the Tata Indicom banner as Tata Indicom VSAT Services thereby leveraging the potential of the group brand presence.With the continued dependence on IT and growth of automation in various enterprises like manufacturing, distributing, banking and finance, there is strong growth in demand for these products and services.The Division has charted an ambitious growth plan in the years to come.NELCO is planning a entry into new market segments and is expected to add 3500VSATs and maintain the decent growth rate of30-35% for the coming yrs too.

Conclusion=Nelco is all set to make a stupenduos turnaround going forward and and aims to make the most from the huge demand that the sectors of it is witnessing.Its not a valuation play but a play on the defense sector.Considering the management,booming user industry,huge order potential,bright outlook and attractive valuations,I feel nelco is a great buy at present levels of 24rs.

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