Power connection

FY08E

FY07

Net Sales239.49191.5991.59 % change25.00109.1874.86 Operating profit35.9228.7413.48 % change25.00113.19125.80 Net Profit16.7613.417.01 EPS (Rs)14.7111.7610.62 P/E (x) @ Rs1359.1811.48-           @Rs 1258.5010.63-  Power focus  In terms of user segment, over half of the company's revenues come from the power sector, where the company's cables come into play both at the generation and distribution levels. With power generation capacity estimated at 212,000 MW by 2015 from 126,000 MW currently, the same is likely to generate demand for high and low tension cables. It is estimated that the market size for power cables manufactured by CCIL is in the range of Rs 3,500 crore, in the next three years.  The company's cable solutions are also used by the infrastructure sector, which are in expansion mode. On the back of orders from power and infrastructure projects, CCIL's order book stands at Rs 77 crore, which is to be executed by March 2008.  Though it appears small, given that the low gestation of three months for order execution and also considering CCIL's size (revenues of Rs 91 crore in FY07), these numbers point to good growth prospects. While the recently expanded capacities will contribute to volume growth in the near term, the new plant is expected to start commercial production by March 2009, will help sustain growth rates in future. CCIL also aims to double the share of exports as well as diversify its customer base.  Investment rationale  CCIL sales have grown at an annual rate of 60 per cent over the last four years (albeit on a low base), with a 78 per cent spurt in sales in FY07. The latter was helped by the enhancement of existing capacity and increased orders. Operating margins, which were at 8 per cent in FY05, have gradually improved and are now at 15 per cent thanks to economies of scale.  Also, the relatively higher margin export business has seen its share rise to 7 per cent (almost negligible in FY 07) for half year ended September 2007. These factors along with robust demand, the company expects, should help sustain margins.  With respect to valuations, at the upper (Rs 135) and lower price band (Rs 125), CCIL is available at 9.1 and 8.5 times, on FY09 estimated earnings of Rs 14.70. These are marginally lower as compared with its significantly larger rival, KEI. At Rs 123, KEI trades at around 11 times its estimated FY09 EPS of Rs 11. Investors can expect gains of about 30 per cent in a year's time, with execution of the greenfield project being the key risk.  Issue opens: January 21, 2008
Issue closes: January 24, 2008