Economic Analysis Of Birla Power Solutions Ltd Business Essay

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Birla Power Solutions Ltd. is an India-based company. The Company is engaged in the production of portable gensets, kilovolt-ampere (KVA) generators, and multipurpose engines, pump sets, sprayers, inverters, power tillers and wind energy. The Company is also engaged in trading of imported gensets and electrical items. The Company operates in three business segments: power and allied products, electrical appliances and others. The power and allied products segment is engaged in the manufacturing of portable generators, engines, pumps, inverters and trading of allied products. The electrical appliances segment includes trading of electrical appliances and miscellaneous components. The others segment include the wind mill energy generation.

One year Stock- price history

Market cap/ Price Volume Data

Volume

876,213

Previous Close

`2.35

Day's H/L

`2.37 - 2.31

Week H/L

`2.43 -2.31

Month H/L

`2.84 - 2.31

52 wk H/L

`4.68 - 2.21

Market Cap

(` Cr)167.08

Shares Outstanding

717,138,560

Closely Held Shares

56,884,320

Return on stock for different holding period

30 DAYS RETURN %

-1.69 Loss   

90 DAYS RETURN %

-23.61 Loss

180 DAYS RETURN %

-31.67 Loss

   

365 DAYS RETURN %

-37.70 Loss

Economic Analysis:

2010 has been particularly impressive for the Indian markets. The NIFTY touched a Jan high of 5281.8 on January 6, 2010. Since then, the markets have corrected 8.6% and are currently trading at 5367 on the NIFTY.

The Indian markets have further downside if we look at a 1-2 month time horizon. Therefore, if looking at some long term investment, one should personally wait for some more time before taking any fresh exposure to the markets.

The Indian markets are still trading at a PE of close to 21. This is higher than the average PE the Indian markets have traded in the last 10 years. Also, the Indian markets have gone up over 100% from its March 2009 lows. After such a steep rise, a correction of even 20-25% can't be ruled out. This would be healthy for the markets in terms of attractive more money as valuations again start looking fair.

The Central Bank in China has been making efforts to control the credit growth as there is a high probability of asset bubbles and runaway inflation in China. Infact, one can say that the Chinese property market is already in a bubble stage. Therefore, there is a high probability of aggressive policy action to control credit growth and this can slow down China's growth significantly. Any such event will trigger a sharp sell off by the FII's in the emerging markets. Hence, the Indian economy might do well and the stock markets tank or correct significantly.

 

There is no doubt that the Indian economy is coming back to a robust growth trajectory. At the same time, inflation is also becoming a greater concern. The food inflation has shown no signs of easing and the WPI inflation is also going up at a robust pace. It would not be surprising to see further action by the RBI relatively soon. This might act as a negative trigger for the markets. 

Sectors to Avoid

Industrial Commodities - will be negatively impacted if there is a sharp slowdown in China

Real Estate - Valuations still look expensive and interest rate hardening can negatively impact growth

Crude Oil Exploration - The China slowdown factor might impact exploration Companies as crude corrects

Industry Analysis

India's vibrant economy needs matching improvements in the infrastructure. Power sector will play important role in the economic development and hence need focused attention. But due to global economic crisis India electrical equipment half yearly growth registered in 2008-09 is down to 8.57 percent from 14.6 percent of the previous financial year (2007-08). However, India posted a positive growth compared with global growth where the growth has been negative a fall of 2.2 percent in 2008 compared to 2007. 

India has taken number of legislative and policy initiatives to expedite power sector development such as Rajiv Gandhi Gramin Vidyutikaran Yogna (RGGVY). All these initiatives provide loads of investment opportunities to FIIs and other investors. The power sector reforms if implemented as scheduled will create large business for power sector equipment manufacturers and service providers. In India electrical sector export in the past 3 years (2004-05 to 2007-08) has grown with much higher CAGR of 57.28 percent compared to 32.25 percent for the period of 1995-96 to 2007-08. We can expect a continuous handsome growth for this sector for at least next five years and it is expected to cross INR 400 Billion by 2013. 

Stocks in Electric Equipment Sector

%RETURN DAYS:

30

90

180

365

INDO ASIAN FUSEGEAR

84.50

84.99

106.02

230.12

JRC INDUSTRIES

40.62

23.18

126.13

182.43

SWITCHING TECHNOLOGIES GUNTHER

29.46

38.53

25.00

36.15

SHILCHAR ELECTRONICS

23.13

25.05

22.56

48.35

HONDA SIEL POWER PRODUCTS

19.31

28.00

58.30

211.19

Due to financial crisis global electrical equipment market has fallen by 2.02 percent in 2008 compared to previous year 2007.

In 2008 Power Cables and Switchgear together controls 60 percent of the market share in global electrical equipment market.

India electrical sector exports have grown with a 40 percent in 2007-08 to compared previous year 2006-07.

Due to economic slowdown India electrical sector has shown a decline of 6.04 percentage points for the half-yearly 2008-09 compared to half-year 2007-08.

Despite India electrical sector negative growth Voltage transformers and Power transformers has shown a growth of 28.6 and 25.7 percent respectively for the year 2008-09 compared to 2007-08.

Company Analysis

The company financials are as below,

Return Ratios

Attribute

Value

Date

PE ratio

129.24

29/07/10

EPS `

0.02

Mar, 10

Sales ( `crore)

56.22

Mar, 10

Face Value (`)

1

 

Net profit margin (%)

1.78

Mar, 09

Last dividend (%)

3

14/10/08

Return on average equity

2.15

Mar, 09

SWOT

Strength

Strong brand recognition

Internet sales

Growing international presence

Superior research and development department

Strong financial returns

Strong sense of culture in the working environment

Successful experience being competitive

Effective Leadership

Cost leadership

Prestigious Client Base

Customer Loyalty

Diversified Business

Product innovation capabilities

Technological excellence.

Good corporate image

Weakness

Complexity of operation

Lengthy processing chain

Opportunity

Growth of core sector industries

Rapid integration with global economy

Booming construction business in Asia

Growing e-commerce's business.

Increasing urbanization

Threat

Entry of global players

Take over possibilities

Political threats

The impact of foreign currency fluctuation and interest rates.

Loss of sales to substitutes

Porter's five forces

Rivalry amongst competitors

High Rivalry

INDO ASIAN FUSEGEAR,JRC INDUSTRIES,SWITCHING TECHNOLOGIES GUNTHER, SHILCHAR ELECTRONICS,HONDA SIEL POWER PRODUCT

Threat of entrants

FDI policy not favourable for international players,

International players looking to foray in the market

Bargaining power of supplier

The unorganized sector has dominant position

Established players, enjoy brand distinction

Bargaining power of buyers

Consumers are price sensitive , Availability of more choice

Threat of substitutes

Unorganized retail

Dividend

Year

Month

Dividend (%)

2008

Oct

3

2007

Aug

6

2006

Mar

8

2004

Dec

6

2003

Jul

14

2002

Jun

14

2001

Jul

12

2000

Aug

11

1999

Jul

11

Recommendation

START PRICE

 2.32

TARGET PRICE

 3.00

TARGET DATE

 24/08/2010

RISK

 LOW

Recommend buying of shares as price correction is expected to till 3.00 by 24th august.

Birla Power Solutions Ltd

Recommendation

  Buy

Start Price

 2.32

Last Price

2.33

Return%

  Gain0.431

References:

http://www.birlapower.com/corporate_profile.html

http://www.cafestocks.com/pickDetails-id-7621-tips-Birla%20Power%20Solutions.htm

http://money.rediff.com/companies/birla-power-solutions-ltd/13120001

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