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Tuesday, October 6, 2009

RPG Cables Ltd:Future growth outlook and prospects

Scripscan:RPG Cables Ltd

Story:The de-registering of RPG Cables from the purview of BIFR marks an important development for the company, which can result in the company getting back into the green, given the current economic conditions. The discharge has come about with the company turning net worth positive, as a result of a conversion of a part of its loan portfolio into equity. The conversion included about Rs 22 crore worth of debentures from Deutsche Bank, which now has 14.7% holding in the company.The company is in the business of manufacturing power cables, mainly for industrial customers. The de-registering gives it an opportunity to plan afresh and improve its profitability. As a first, it plans to mop up about Rs 50-60 crore through sale of its land bank and set up a manufacturing unit for high-tension power cables, a segment that is witnessing maximum demand. This would require an investment of about Rs 100 crore, and would require fresh borrowing.However, its cost of funds is quite high at about 13.5%, and the company may have to look at ways to reduce this, before committing itself to fresh borrowing. For instance, it has a significant amount of money blocked in its asset portfolio such as unquoted investment worth Rs 95 crore and various loans of Rs 65 crore as at the end of FY09, which together represent nearly 80% of its balance sheet size. The company may need to unlock this for its expansion needs and improving the operating profitability. Also, one of its plants is lying idle, and company may need to explore possibilities for this more aggressively.If the management can sort all these out in quick time RPG cables can certainly get a fresh lease of life.We have seen how MR goenka transformed kec and cesc from loss making entities to big powerhouses.Potential remains robust for the counter and I feel it can be bought at dips.Risk-return favours the investors here.

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