GE India to acquire Indo Tech transformers

[dhilipkumar]

CHENNAI: General Electric India is to soon acquire Chennai-based Indo Tech transformers for an undisclosed sum, according to various sources connected with the development. The buy will help GE, known to acquire to grow in its important markets, strengthen its manufacturing presence in the power sector.

Indo Tech Transformers, part of the Rs 240 crore Indo Tech group, used to get a significant portion of its revenues by supplying distribution and power transformers to the state electricity boards (SEBs), but of late its been focussing more on the industrial and export segments.

KPMG is said to be advising the parties on the transaction. In response to an e-mail query about the deal, a GE India spokesperson said, "GE does not comment on rumour or speculation." Indo Tech executive director PS Jagdish said, "no, not at all" when asked about his company's sell out to GE.

But officials close to the development- both on the industry and the investment banking side-and those close to the promoter groups, confirmed that the two parties have reached a deal and it will be formally signed into an agreement by the end of this week. The same officials said that GE India would acquire the stake of promoters .

Indo-Tech has a good profit track record. In the first half of this year, it clocked a 43% rise in net profit at Rs 24.63 crore against Rs 17.14 crore in the same period last year. Net sales increased to Rs 119.38 crore ( Rs 90.75 crore). During 2007-08, it reported a net profit of Rs 39 crore on net sales of Rs 189.86 crore.

The board has declared an interim dividend of 85% for the current year against 60% paid last year. As on March 31, 2008, it has reserves and surplus of Rs 112 crore on a thin equity of Rs 10.62 crore in which the promoters hold 54.34%, institutions 18% and public the rest.

The transformer company is the flagship of the Indo Tech Group. Founded by PE Subramaniam in 1976, it produces a range of distribution and power transformers. The company raised Rs 40 crore a couple of years ago by selling shares to the public. Mr Subramaniam's sons- PS Jagdish and PS Shekar are part of the top management.

From a buyer's perspective, GE is known to grow through acquisitions and valuations would be attractive in the current market. On the other hand, Indo Tech promoters are said to have got a good premium over the current price.

"Indo Tech has been showing consistent profit of 20-25% over the quarters. It's well-positioned in the power sector and is a good buy for GE," said an official in the power sector, who did not wish to be named.

In the last one month, the company's share price soared by 34.69% from Rs 184.95 on November 1st to the current price of Rs 249.10. According to the company's stock archive on the BSE, the total number of trades for the months from July to October 2008 was over 15,000. But in the month of November alone, the stock was traded 15,000 times. On Tuesday, Indo Tech's scrip on the BSE was down 4.19% at Rs 249.10.

About the heightened activity in the stock, Mr Jagdish said, "We declared dividend and announced disposal of some idle assets. That's the reason, there's nothing else."

The company has four manufacturing facilities spread across Palakkad in Kerala, Thirumazhisai and Kancheepuram in Tamil Nadu. Its order book as on October 10th 2008 was Rs 170 crore for a capacity of 1,700 MVA (mega volt ampere). Exports account for Rs 50 crore of this order book.

Almost 60% of Indo Tech's order book comprises industrial clients and exports, a deliberate attempt by the company to beat the ongoing slow down in orders coming from the SEBs.

According to a report put out by Spark Capital, the eleventh five year plan, which will see a ramp up in power generating capacities, will have a positive impact on equipment suppliers such as Indo Tech. A Crisil estimate says the transformer demand on account of increased power generation in the eleventh plan to be 4,87,000 MVA, an average of 97,000 MVA per annum.