The Hindu Business Line : Phoenix Lamps: Reject

Shareholders of Phoenix Lamps can reject the open offer, as the growth potential is not completely factored into the offer price. The company could witness high double-digit earnings growth rate over the next two-three years, given its leadership position in the automobile lamps market and the high-growth compact fluorescent lamps market.

The offer price, at Rs 152 per share, is at a 20 per cent premium to the current market price. The offer price is at 18 times its FY-06 per-share earnings after considering the dilution in equity, post warrant conversion. With a return on net worth of 30 per cent, the valuation does not appear stiff.

Offer background

The acquirers (private equity investors) have bought a 36.63-per cent stake in the company through an equity purchase and warrant-allotment scheme. The stake was bought at Rs 152 per share and the warrants, convertible into equity shares within 18 months, were allotted at Rs 102 per share. The acquirer has taken a stake in excess of 15 per cent in the company and hence the open offer. The offer closes on September 14 and the offer price is Rs 152 per share.

On a growth trajectory

Phoenix Lamps has presence in two main product segments — automobile halogen lamps and compact fluorescent lamps. The former contributes 58 per cent of the turnover and the latter, the rest. Phoenix is market leader in the automobile lamps segment with close to 70-per cent share. The margins, too, are quite high in this business product.

Given the expansion plans of various auto majors and the consistent volume growth in both the domestic and export market, the growth potential appears bright for Phoenix.

The compact fluorescent lamps market, too, is growing at a fast clip. This segment is projected to grow at 25-30 per cent over the next few years. These energy-saving lamps are replacing conventional lamps in a big way and enjoy better margins than the latter. Given the huge opportunity, top players in this segment such as Havell's, Indo Asian Fuse Gear and Crompton Greaves have expanded capacity significantly.

As all have set up fresh capacities in Uttaranchal, a tax haven, Phoenix Lamps may not have any tax advantages over its peers.

New players, too, are entering this segment. As competition hots up, margins may slip. However, with overall operating margins at a comfortable 20 per cent, Phoenix may be able to compete on pricing.

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