Executive summary:
- cheap PE of 5.33
- Market price of Rs. 100 is below book value of Rs. 137
- good dividend yield of 4.4%
- Diversification into wind power may lead to re-rating
At CMP of about Rs. 100, Precision Wire is quoting
at a PE of 5.33 (the EPS for FY 10 is Rs. 18.76).
This is cheap. In addition, Precision Wire paid out a
dividend of Rs. 4.4 (44% on Rs. 10 paid up) which translates to a
dividend of 4.4%.
Further, Precision Wire has a book value of Rs. 137
(Paid up capital: Rs. 11.56 crores + Reserves (excl. revaluation
reserves) of Rs. 146.90 crores
So, Precision Wire gives you the protection of a low
PE and good dividend yield. Your downside risk is nicely protected.
The icing on the cake is Precision Wire’s decision
on 13th May 2010 to set up a 2.1 MW wind energy project in
Gujarat. The cost of the project is about Rs 12 crores.
This should lead to a re-rating of the share.
More About Precision
Wires:
Precision Wires India is the largest manufacturer of
enamelled copper winding wires in India. Precision Wire’s
current installed capacity is over 25,000 metric tonnes/annum. This
capacity is further being increased with several expansion projects in
the pipeline. Precision Wires has three manufacturing
facilities located at Silvassa, Dadra Nagar Haveli and Palej, Gujarat.
In 2006, Precision Wires entered into a long term
Technology Transfer Agreement with ESSEX Italy for the
manufacture of Continuously Transposed Conductors (CTC), Enamelled
Copper Strips and various other types of Rectangular Insulated Winding
Wires. ESSEX Italy is a world leader in the manufacture
of Rectangular Insulated Conductors and is one of the largest and most
renowned global producers of CTC. The agreement gives us full access to
the latest technology for all the products.
In 2008-09, Precision Wires‘ operations suffered a
severe set back owing to the sudden and steep fall in the price of
Copper, its Primary Input, from October 08 onwards. This resulted in
losses on sale of its finished product. Also, due to sudden economic
slow-down in the 2nd half of the year, its customers deferred taking
delivery of the finished product though it had to take delivery of
Copper against its commitments. Due to this mis-match, Precision
Wires was forced to sell its finished product at lower market
price which resulted in losses. Furthermore, Precision Wires
incurred losses on inventory of Copper.
Of course, Precision Wires is back on the growth track for FY
2009-10 as witnessed from the figures given above.
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