Rama Krishna Vadlamudi,
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Dear
Friend,
Swelect
Energy Systems Ltd (Old name: Numeric Power Systems):
1.
Business: After selling its UPS business through a slump sale in June last
year, the company is now focusing on solar energy and wind power systems and
related businesses, after acquiring controlling stake in HHV Solar Tech and BS
Powertech Solutions. In recent years, it has also acquired controlling stake in
foundries, steel and alloys--namely Amex Alloys Pvt Ltd and Amex Irons Pvt Ltd,
both based in Tamil Nadu. The solar/wind business is a promising business,
because public awareness about power cuts, cost benefits and clean technology
has increased in India
2.
Financials: I've looked at its 2012-13 Annual Report. There is no use analyzing
the financials of the company to form an opinion about the company's strength
because--after the slump sale of its core UPS business, it is just like a
start-up. It has good cash balances in the Balance Sheet (B/S), including some
cash kept in an escrow account related to the now-sold UPS business. So, please
do not give too much consideration to the current book value of the company. In
the past five to six years, the promoters have not relied on debt to grow their
business and as such their interest costs had been minimal. The promoters seem
to be following some discipline in relation to managing finances. For 2012-13,
the operating cash flow is negative at minus Rs 40 crore. This is obvious
because the company started on a clean slate last year after selling UPS
business. Leaving aside the special dividend of Rs 120 per share paid in July
2012, it has been consistently paying dividends for several years.
Historically, its dividend payout ratio is quite low at 10%--I think this is
because the company had been using the retained cash for business rather than
distributing it, thus avoiding any debt on the B/S.
3.
Corporate governance: The promoters' stake in the company is 65%. There is no
record of pledged shares by them. I think the company doesn't have any governance
issues.
4.
Institutional shareholding: Currently, the FIIs and Mutual Funds hardly own any
shares in the company. In fact, their holding has come down from about 8% (18
months back) to almost nil now. Once the bread-and-butter UPS business is gone,
the institutional investors seem to have lost interest in the company’s stock
after the payment of special dividend of Rs 120 per share last year.
5.
Comparables: Due to the incipient nature of the business, I'm unable to find
any listed companies comparable to Swelect ES.
My opinion:
Overall,
the promoters seem to be okay. The solar/wind business and foundry business
seem to be unrelated. I'm unable to figure out what would be the core business
of the company going forward. There is no clarity on business prospects, though
I'm sanguine in general about solar power in India India
The
current market price of the stock is Rs 144 and its market capitalization is Rs
145 crore. Considering the uncertainty about its business prospects, bear grip
on Indian equities, fear of QE tapering by the US Fed, and sputtering Indian
economy, I would avoid investing in the stock at this point of time.
Disclosure: This is a short analysis and not a through analysis. I
don’t own any shares in the company’s stock.
Sharing is Winning,
Rama Krishna V
Disclaimer: The author is an investment
analyst has a vested interest in the stock markets.
Note: The following is my email reply to a query from a
friend abroad about the prospects of this Chennai-based company.
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