SEL Manufacturing

SEL Manufacturing. That’s the name of the company which I think is a wonderful investment opportunity at the current price levels.

Current price: Rs 72.55
Price target: Rs 350
Time period: 2 years

This one was a very easy pick. A screaming buy. Lets look at the financials so that we have an idea as to what the company is performing like

                             Mar '05  Mar '06  Mar '07 Mar '08 Mar '09  CAGR

Net Sales                 64.31  121.56   188.84    366.83  606.53    75%
Profit after tax            3.33    14.64     23.60    44.85    54.78    101%
No of shares (cr)         0.02     0.98       0.98      1.52      1.72
EPS (Rs)                   168.72   14.92     24.04    29.48    31.91
Book value (Rs)      4,682.52  110.86      135   142.81  183.88
Reserves (in cr)        92.33    99.01    122.71   202.08  298.49

During the period FY04 to FY09 sales have grown from Rs 64.31 crores to Rs 606.53 crores which is approximately a ten fold increase or a 75% CAGR. Correspondingly the PAT (Profit after tax) has also grown from Rs 3.33 crores in FY05 to Rs 54.78 crores in FY09 which is again a CAGR of 101%. However the EPS has not increase in that proportion. That is because the equity base has been expanded. And the reason is simple - for expansion.

There is more to it. During current year FY10 sales are Rs 471.91 crores and net profit Rs 38.41 crores. EPS is Rs 20.16. Just look at the FY09 numbers again and you will understand what stupendous growth this company is showing. Assuming the H1 FY10 performance is maintained during H2 FY10 we would be looking at an EPS of close to Rs 40. At current market price of Rs 72.55 this translates into a PE multiple of less than 2.

Still not convinced. Let me give you some more pointers. Exim bank has a 5% stake in the company since July 2007. (Check this link)

So what are the concerns. It has an ever growing debt in its balance sheet. At the end of FY09 the overalll debt stood at Rs 623.71 crores. Interest payment of Rs 37.77 crores. Highly leveraged company but considered the growth rate it seems quite justified.

We have seen a lot of companies with high debt but this one is different. Its a company with phenomenal growth rate. Unless ofcourse the numbers are fudged. Thats a caveat.

However if the growth is true which I believe is the case (remember Exim bank is a 5% stake holder) then we are looking at a phenomenal company at almost throwaway prices. Limited downside and upside on a conservative basis of atleast 5 times.

Think about it.