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Thursday, September 10, 2009

Artson Engineering Ltd:A TATA managed potential midcap gem

Scripscan:Artson Engineering Ltd
cmp:65
Code:522134

Story:In the EPC Division, the company provides end-to-end solutions, right from design and engineering, project management and construction, to providing quality assurance and guarantees. The company undertakes projects relating to tank farms, petroleum depots and terminals (Oil and Gas), DG set based power plants, fuel handling systems (Power), and residual design and engineering for food processing industry. In the Construction Division, AEL is into construction of tanks, silos, pipelines and equipment erection (Mechanical), industrial civil works and structural works for plants (Civil) and Composite Contracts like refinery turnaround-shut down jobs. The company specializes in turnkey project execution for the oil and gas industry. The Reliance Group, the Essar Group are among its repetitiveclients.Artson Engineering Ltd became a TATA group company after Tata Projects took majority stake and management control of AEL. This has led to a significant PE re-rating for the company. Also, due to infusion of fresh funds as well as settlement of debt, the book value per share would also go up.Reverse merger with tata project is a probable scenario.Strategically, it makes sense for the Tata Group to have a single company, instead of two companies in the same business.Therefore, after taking majority stake in AEL, a reverse merger of Tata Projects and AEL would be very logical. In such a case, the upside potential of AEL would be tremendous due to the PE re-rating as well as a total change in the scale of business.At CMP of Rs.65, the stock looks definetly expensive.It would a better buy on declines say at 48-50 levels.But, Given the company’s proven expertise and experience in its area of operations,improving financial performance, and the involvement of Tata Projects Ltd.,I believe that AEL presents a good investment opportunity at dips for long term investors.Investment in this company should be made only by investors with high-risk appetite.

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