The Hindu Business Line : HBL Nife Power Systems: Invest

The company has a comfortable debt-equity ratio and interest coverage. Given the many opportunities in core applications such as telecom and power, the company has reasonable growth prospects.

Attractive offer price
Low equity dilution
Reasonable growth prospects

Demand from user segment is growing.

Shareholders in HBL Nife Power Systems can consider investing in the rights issue of the company.

The offer price of Rs 100 is at a substantial discount to the current market price. At almost a 50 per cent discount to the market price, the offer gives an arbitrage opportunity.

The low expansion in equity is unlikely to cause any dilution in earnings. Traded volumes are, however, very low.

The offer

HBL Nife is making a rights issue in the ratio of one share for every 10 held. The company expects to mobilise Rs 22.07 crore. The stock is now available at Rs 197 in the secondary market. The funds raised from the rights issue will be used to finance its long-term working capital needs.

Fortune Financial Services is the lead manager to the offer. The issue closes on July 29. The company had made a preferential offer in 2005 at Rs 255 per share.

The company

HBL makes specialised batteries, electronics and DC power systems and caters to a variety of end-user requirements across industries.

The customer segments include telecom, railways, defence, power, solar energy, petroleum, oil and gas, and uninterrupted power supply systems.

The working capital requirement of the company is high, as most of its end-users demand credit for a longer duration. The company does not have a presence in the automotive segment, unlike Exide or Amara Raja Batteries.

The rights offer will not expand the equity base significantly. Despite the high working capital requirements, the company has comfortable debt-equity ratio and interest coverage.

Given the many opportunities in core applications such as telecom and power, the company has reasonable growth prospects. HBL reported a 30 per cent growth in revenues and a 43 per cent rise in net profits for the year ended March 2006.

Exports too have been growing at an impressive pace and account for 17 per cent of sales. Nortel Networks is its top customer and accounts for close to 25 per cent of sales.

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