Background: India is being electrified – quite literally. This year, electricity has reached 100% of our cities and villages and now the next target is to provide electricity to each and every home in the country. This will usher in huge opportunities for the electricity infra providers and smart meters would be one of the biggest beneficiaries of them. Smart cities have already given a big push to smart meters manufacturing but there is huge demand that is also coming from total electrification and replacement markets. Replacement market are the municipalities that are replacing the old age analog meters with smart and prepaid meters. Advanced Metering Technology Ltd. (AMTL) is one such company which is expected to be significant beneficiary of this mega opportunity brewing.
The Company: AMTL was born out of demerger from EON Electric Ltd in 2011-12 when EON Electric (formerly known as Indo Asian Fusegear Ltd.) sold its Switchgear business for more than 600cr. Indo Asian switches was one of the rare electrical fitting brands that was created in india. After selling the switchgear business, the shareholders were given a one time special dividend too. Indo Asian was left with the lightings, wires and cables business and between the two promoter families it was decided the Indo Asian would be rechristened Eon Electric which would continue with lightings business and the other promoter, the Ranade Family, that more interested in Energy management, conservation and metering business would form the other entity called Advanced Metering Technology Ltd (AMTL). AMTL in its true sense was a startup with no existing business but was incubated with very experienced management that had a strong vision.
AMTL’s business has primarily three things 1. Wind power 2, Engery Audits and 3. Meters. AMTL operates 3 wind mill power projects located in Jaisalmer district in Rajasthan with a total capacity of 11.7 MW and has been operational since 2012. These wind mills had been the cash generating vertical of business initially. Energy audits vertical is small relatively but this has immense potential and is probably capable of engrossing maximum margins. Lastly, the Smart Meters is their fastest growing vertical and has humongous potential. Smart meters, which also include pre-paid meters is being used heavily in the smart cities and in the majority of new societies that are being formed. The affordable housing also has a huge component of these smart pre-paid meters. The demand in this sector is huge and india is facing capacity constraints. Therefore, part of the demand had been going to un-organized sector too. But with implementation of GST, this demand is shifting back to organized space and AMTL has been a clear beneficiary. Metering business which is the lion’s share of AMTL’s revenue has been growing at 40% CAGR for last few years and is expected to continue with this pace even on higher base. The reasons for this are multiple. Unlike, others, AMTL has got good spare capacity and in the last few years they have made a good name in the industry for quality and execution. Since, they were new, they were just qualified to do some job works as a sub-sub-contractors and therefore, the volume and margins were low but now they have enough Smart meters manufacturing experience which has made them eligible to become consortium sub-contractors which is bringing significantly higher volumes now. But the biggest kicker is expected to come in the next few quarters , when it would also become eligible to be part of the consortium itself (based on the volume of meters manufactured). So, the script appears to be for strong and sustained growth.
The management quality is good and they are cost conscious. One of the best examples of the management cutting unnecessary cost was its decision to delist from NSE. It decided in favor of BSE as that’s the oldest exchange with widest network and saved itself listing fees of NSE (and this happened when the company was just building itself).
The management has proven credentials and have built huge successful business in the past and has laid a strong foundation in the present one as well. The business is growing at a very fast pace and is available at throwaway valuations. The pace of housing is going stronger by the day and as we approach the housing for all deadline, the pace will only increase in future, paving the way for strong growth for AMTL in the near future. The company has good land bank and they have put on rent part of it in the last FY and in the present FY, another part of it will be put up on rent giving a further fillip to margins.
Valuations: AMTL is available at a market cap of just 28cr which is just 0.25% its netwoth and 0.7 times its sales. The promoter stake is at a strong 63.55%. The company has debt of around 6cr and compared to its balance sheet its minuscule. In the last 5 yrs the revenues have grown from less than 6cr to over 40cr. The operating profits have also turned around from operating loss of more than 6cr in the same period. Last yr, due to accounting changes and partially due to GST effects, last yr was an abberation but the company has indeed turned around with this quarter, i.e. Q1 FY19, company has even given net profits for the first time. In all likelihood we can hope to see profits in this complete FY19 too. A couple of yrs back promoters had increased their stake by buying from the open market at a price that was more than 20-25% high than the current CMP.
Technicals: Small cap index has been butchered, but there a few stocks which have weathered the storm quite well and are refusing to budge and AMTL is one of those few. As with every stock that has its own cycle, AMTL had turned downwards much before the small cap index started correcting and it has now completed its correction. In the process it has made a higher high on its lifetime charts. The trend and momentum has already turned around. Despite the fact, that small caps are crashing, AMTL has not gone down even a bit and on the contrary is strengthening and is near its multi-weeks and quarter highs. These kind of stocks which show strength during such market crashes normally give way better returns and at times even become the leaders of the next upmove. Its also worth noting that in the last few months the volumes have dried up and whatever little volume is generated its quickly absorbed clear sign of accumulation by smart hands.
I think its no secret that I like turnaround stocks and mostly focus on them. I love the fact that these stocks are oblivious to general investor fraternity and therefore, available on attractive valuations. Since, these stocks are out of the radar of all, we get to accumulate on our own terms and as the growth continues, it comes out of oblivion and eventually gets top billing. These stocks also have their own technical script which is mostly indifferent to the broader indices. I believe that AMTL is sitting on a golden business opportunity and this is also evident with the pace of growth. AMTL is backed by a good and ethical management who has experience in building big business. I am extremely hopeful that this sub 30cr market cap company can also become and big wealth creator in times to come. This is surely a story to keep on radar.
Disclaimer: It is safe to assume that I have some vested interests in the stock. Also, the above stock story is my personal view in individual capacity and I am not a SEBI Registered Research Analyst. For rest, please look at the About page.