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Tuesday, November 22, 2011

M and B Switchgears Ltd:-Buy/sell/growth prospects and recommendation,news and results,target price and analysis,view and outlook,multibagger

Scripscan:M and B Switchgears Ltd

Story:M and B Switchgears is a family owned business promoted by the Mundra family in Indore, Madhya Pradesh. The company's core business includes manufacture of various types of industrial transformers. Its major clients include state electricity boards of Madhya Pradesh, Chattisgarh, Tamil Nadu, mining companies and other private players.The company is setting up a 2 MWp solar plant in Rajgarh district of Madhya Pradesh. This plant, financed through internal accruals and bank loans, is expected to be operational by the end of the current calendar year. The company also intends to add 4 MWp generation capacity to the plant.Power Generation, being a new line of business for the company, there is no ready financial data available to evaluate the company's expansion plans in this segment. As for its core business, the transformer business, is concerned, the operating margins were just around 6% in FY11, indicating a major squeeze in profitability. It reported a profit after tax of just around 77 lakh for the year on a turnover of 34 crore. The slowdown in the industrial sector has also impacted the company's sales growth, which has been negative in FY11 vis-Ã -vis a year ago.As far as the balance sheet is concerned, a recent bank term loan of over 22 crore to finance its solar power project substantially increases the existing leverage on its balance sheet.Moreover, as the loan carries a high, double-digit interest cost, the margins may continue to be under pressure, at least till the time its solar power generation business begins to generate decent revenues.Notwithstanding the fact that the renewable energy is set to witness a surge in demand, and that company will benefit by not only supplying solar power to grids and industries but also through sale of renewable energy certificates (REC), the proposed IPO is priced aggressively.At the current price , the scrip commands a price/earning (P/E) multiple of over 400,which sounds indigestible given the company's lack of expertise in the new line of business. The other popular transformer companies in the country today are commanding a P/E less than 10.Its a blind sell at present levels.Fair value at 25rs.

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