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Saturday, April 23, 2011

Elpro International Ltd:-Buy/sell/hold,growth prospects and recomendation,news and results,target price and analysis,views and outlook

Scripscan:Elpro International Ltd
cmp:420
Code:504000

Story:Promoted by Dabriwala family, Elpro is engaged in production and marketing of Electrical equipments like Lightening arrestors, Secondary Surge arrestors etc.However, this business is not growing due to intense competition.Company had closed down its Chinchwad factory by giving VRS to workers and used surplus land for property development. Revenues from property deveopment have started accruing.For 9month ended Dec 2010, Elpro has reported turnaround in its operations by achieving Pat of 4.19 crores as against Loss of 3.28 cr in corresponding period of previous year.Such turnaround has been possible mainly due to real-estate division.

REAL-ESTATE DIVISION: Full details in terms of saleable area being built etc are not yet know to this writer.However, Elpro has already received around Rs 130 crores as advance against booking of flats and making of agreements. It means revenues from real-estate division can be pretty decent,considering that in Q3, real-estate division had contributed 14 cr to its topline.

PREFERENTIAL OFFER: Elpro had issued convertible warrants to some FIIs which have already been converted into Equity shares @ Rs 611. As a result, its equity increased from 4.33 crores to 4.61 crores.

INVESTMENT IN METLIFE INSURANCE: As on 31st March 2010, Elpro was holding 26,11,02322 (26.11 crores) shares at cost of Rs 273.11 crores. Elpro also paid another Rs 76.41 crores to Metlife for further allotment of shares. This writer is not aware whether this application money has already been converted into Equity shares by Metlife.In Metlife, other big Indian investors are J&K Bank, Shapoor Pallonji group and these 2 investors also hold more than 40% of Metlife's equity.It is reliably learnt that one investors wants to sell his stake of Metlife by valuing Metlife @ more than 2 billiion dollars. By this yardstick, value of current holding of Elpro in Metlife works out to 900-1100 crores. Even if wetake lower end of 900 crores, this value works out to Rs 1950/ per share of Elpro.Conversion of Application Money in equity shares will further enhance value of Elpro's investments.

PROMOTER CONFIDENCE:Since last one year, promoters have been constantly buying Elpro from open market and regularly enhancing their stake. Moreover, Elpro is perhaps a unique case in Indian corporate sector wherein promoter has given loan to Listed entity so that Listed entity can make investment in Insurance business.Promoters have given advance of Rs 125.15 crores to Elpro (which Elpro gave to Metlife to get Metlife equity).Otherwise, it is a common practice that for any promising sector/venture, promoters invest in their personal capacities ( there are several several listed companies in commodity or other sector.And promoters of such companies have invested heavily in Infra/Real estate sector in their personal capacities and not via Listed companies). And here, Listed company did not had enough funds to invest in Metlife and got loan from promoters for this purpose. Now, Elpro will be coming with Rights issue and promoter's loan to Elpro will be adjusted against Rights entitlement of promoters.

VALUATIONS/RECOMMENDATION: Elpro appears almost risk-free buy as scrip is available at almost 50% discount to its 52 week high of Rs 774 and 35% discount to Preferential offer price of Rs 611. Now, with Nippon acquiring stake in Reliance Life Insurance, insurance sector should be rerated. Metlife (and Elpro) will benefit immensely from such development.Current market cap is just 185 crores as against at cost investment of 350 crores.Real estate division can be valued at more than Rs 150 crores.Fair value of Elpro's investment in Metlife works out to approx Rs 1950 per share and CMP is just 20% of same.Also considering increasing stake of promoters through open market purchase and advancing of promoter loan to Elpro points to tremendous confidence of promoters in Elpro's future and value.Altogether a company with real multibagger potential.

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