MODISON METALS

MODISON METALS

THE COMPANY IS OPERATING IN A NICHE SPACE OF MAKING ELECTRICAL CONTACTS USED IN SWITCHGEARS.  IT HAS THE EXPERTISE AND CAPACITY TO MAKE CONTACTS FOR LOW, MEDIUM AND HIGH VOLTAGE SWITCHGEARS USED IN FACTORIES, POWER PLANTS, HOMES, RAILWAYS ETC.

IT HAS THREE MANUFACTURING LOCATIONS AT MUMBAI, VAPI AND SILVASSA. 

IT CATERS TO CLIENTS LIKE AREVA, ALSTOM. CROMPTON GREAVES, LARSEN, SIEMENS, ABB  AND HAS BEEN APPROVED AS THE LONE SUPPLIER OF AREVA’S GAS INSULATED SWITCHGEARS.   NOT SATISFIED WITH QUALITY OF CHINESE PRODUCTS, AREVA’S CHINA ARM ALSO SOURCES ITS NEEDS FROM MODISON METALS.

THE ELECTRICALS CONTACT BUSINESS IS CUSTOMER CENTRIC AND CONTACTS MANUFACTURED FOR ONE CLIENT WILL NOT SUIT OTHER CLIENTS

THE COMPANY’S MAIN STRENGTH LIES IN ITS ABILITY TO PROCESS RAW BILLETS AND SILVER POWDER AND COPPER INTO CONTACT MATERIAL. THIS NEEDS HIGHLY SKILLED AND TRAINED LABOUR, ALONG WITH THE LATEST EQUIPMENT. PLUS THE COMPANY DOES NOT KEEP ANY OF ITS POSITIONS FOR RAW MATERIALS OPEN AND HENCE IT IS IN A WAY HEDGED AGAINST RAW MATERIAL VOLATILITY.

FINANCIALS

CMP 38  MARKET CAP 123 CRORES  BOOK VALUE 18.76, PROMOTER HOLDING 52.46 %, NO PLEDGING, HNI, FI, OTHERS HOLD AROUND 25%, PUBLIC HOLDS AROUND 22.5 %

DEBT AS ON MARCH 2010 IS 9.96 CRORES  AND CASH ON HAND IS 5.78 CRORES.

A LOOK AT THE LAST SIX QUARTERS

QTR	MARCH09	JUN 09	SEP 09	DEC 09	MAR 10	JUN 10
SALES	16.18	18.85	23.68	25.24	35.85	32
NP	1.77	1.92	1.92	3.18	4.79	3.16

LAST SIX YEARS

YEAR	05	06	07	08	09	10
SALES	42.36	59.73	92.77	117.78	85.69	103.63
NP	4.4	7.19	10.07	14.07	7.91	11.79

LOOKING AT THE ABOVE FIGURES GIVES THE IDEA ABOUT THE STRONG RESULTS THE COMPANY IS PUTTING UP AND NOW IT SEEMS ITS GROWTH HAS ENTERED THE HIGHER TRAJECTORY WITH GOOD MARGINS SINCE LAST THREE QUARTERS.

CONSERVATIVE ESTIMATES WOULD PUT THE SALES AT AROUND 120-130 CRORES AND NET PROFITS AROUND 15-18 CRORES GIVING AN EPS IN EXCESS OF 5 FOR FY 11.

POSITIVES:

1.       COMPANY WITH GOOD BALANCE SHEET AND EFFICIENT  PROMOTERS

2.       VALUATIONS LOOK ATTRACTIVE , STOCK AVAILABLE AT A PE OF AROUND 7.6 (BASED ON CMP OF AROUND 38) ON EARNINGS OF AROUND 5 FOR FY 11.

3.       COMPANY OPERATES IN A NICHE SECTOR

4.       COMPANY SEEMS TO HAVE BUILT A GOOD REPUTATION FOR ITS BUSINESS LOOKING AT RECOGNITION IT HAS GAINED FROM INTERNATIONAL AND DOMESTIC  ELECTRICAL COMPANIES.

NEGATIVES:

1.       GROWTH LARGELY DEPENDENT ON SWITCHGEAR INDUSTRY AND HENCE ANY SLOWDOWN IN IT MAY AFFECT THE COMPANY’S GROWTH

2.       DEPENDENCE ON A FEW CLIENTS FOR ITS BUSINESS (ALTHOUGH THE CLIENTS HAVE BEEN AROUND FOR A LONG TIME AND ARE REPUTED COMPANIES)

3.       ALTHOUGH MOST OF RAW MATERIAL PRICE VOLATILITY  IS PASS THROUGH IN NATURE, THERE IS A TIME LAG AND HENCE Q-ON-Q RESULTS MAY SHOW VARYING PROFIT MARGINS.

TECHNICALS.

THE STOCK RECENTLY BROKE OUT FROM A SHORT TERM TRIANGULAR CONSOLIDATION AT AROUND 30 LEVELS AND RALLIED TO POST A HIGH AROUND 42-43 AND IS CURRENTLY CONSOLIDATING AROUND 37-38 LEVELS.

 THE STOCK IS MOVING IN AN UPWARD SLOPING CHANNEL AND IS TRYING TO BREAKOUT FROM THIS CHANNEL. VOLUMES HAVE PICKED UP DURING THE LAST THREE WEEKS.


disc:  I have the stock in my portfolio and have recommended it on theequitydesk at around 30-32 levels.