>ECE INDUTRIES LIMITED (GEPL)

OVERVIEW

The Indian Transformer Industry – presently valued at around Rs 60 Billion, has been in the forefront, not only in terms of cost-effectiveness and technology, but also in terms of quality and design. It has grown to become a leading manufacturer of all types of transformers – distribution, power and other special types used for welding, traction, furnace and other applications. Owing to its ability of keeping pace with new developments, India exports almost 10-15% of its overall transformer production. About 60-70% of the production is absorbed by SEBs (State Electricity Boards) and the balance is bought by private sector companies. ECE Industries Ltd is a North based company engaged in manufacture of power transformers. The company is also engaged in manufacturing of switch gears and Elevators under technical collaboration with companies like Toshiba and Mitsubishi. It also has a Projects Division which is engaged in undertaking turnkey projects.

INVESTMENT RATIONALE
Looming power shortages have forced the government to focus very intently on power generation. Thus about 58,000 MW (megawatt) of fresh capacity (revised from 78,000 MW original target) is targeted by 2012.. Additionally, around 16,000 MW is expected to be added by ultra mega power projects. As a thumb rule, for every 1 MW of capacity added, 7 MVA (megavolt ampere) of transformers are required across the entire power system. Further the government through APD & RP (Accelerated Power Development & Reforms Program) scheme aims to make the power generation profitable to them through reduction of losses through transmission & distribution by up-gradation of the existing network. With the estimated life of a transformer at about 20-25 years, demand is also expected to come from the replacement market which could be in the region of 20000-30000 MVA p.a. ECE is engaged in manufacture of transformers upto 220KV class and upto 100MVA capacity. The company has taken steps to create facilities to manufacture higher range of transformers.

According to industry sources, the demand-supply scenario for transformers is expected to remain favorable for the next few years and this demand is expected to come more from SEBs as one expects a slowdown from private sector in the immediate future. ECE stands to benefit in this as its focus has always been towards SEBs which accounts for major of its production. ECE was also engaged in manufacture of Industrial meters however due to continuous bleeding and the activity becoming unprofitable it has suspended this activity and stopped production from the second half of FY ‘09.There has been a decline in revenues from the contracts business during the year as ECE intentionally did not take the new contracts for railway electrification, as they had pending orders. The company is reported to have taken a decision to discontinue this line of business after completion of pending orders. The switch gear business of the company is expected to have good growth in the near future primarily because of the major growth seen in the power sector.

The Elevator business of the company saw a good growth in the year under review with turnover registering a growth of 88% from Rs 76 Mn (Fy‘08) to Rs 144 Mn in the current year and this higher turnover enabled it to reduce the losses that this division was incurring earlier. The company has plans to spruce up and strengthen its marketing infrastructure seeing the increasing customer base and market for elevators. This division is expected to further improve its performance and thus contribute both to the turnover and profits of the company.

To see full report: ECE INDUSTRIES