Nelco Goes With Tata Power

The financial performance of Nelco continues to deteriorate. If its net loss for the first quarter ended 30th June 2008 was at Rs.4.89 crore, t has now gone up in the second quarter ended 30th Sep 2008 to Rs.11.35 crore. This has been like a douche of cold water. From a trailblazing performance and turnaround it reported in Q4FY08, this slipping back into consistent losses disappointed the markets considerably. Yet, its stock price managed to bounce back from the lower levels and is now steady at quoted at Rs.38, indicating that despite the losses, maybe the fact that it comes from the stables of Tata and also that it has a lot of fancy in the market, helped in holding up the share price. And this fancy has been built up on expectations of the restructuring, which is keeping the stock price stable.



For Q2 ended 30/09/08, its net sales rose 49% to Rs 28.59 crore, while QoQ its topline rose 49%. It then went on to report a net loss of Rs 11.35 crore in the current Q2. For Q2FY08, it had reported a net profit of Rs.1.96 crore.



The biggest orders for the company comes from the Ministry of Defence (MoD) and the past trend indicates that the first three quarters of the company are always subdued, the orders from MoD fructifies only in Q4.



The reason why investors have still stuck on to Nelco, despite the losses is due to expectations of a restructuring which would turn around the fortunes of the company. Tata Power is the main promoter of Nelco, it has a 48.64% stake in the company. Tata Power’s Strategic Electronic Division (SED) has an order booking in excess of Rs.200 crore with status of a Prime Contractor with MoD. There has been news doing the rounds for a long time that this SED would be transferred to Nelco as the nature of its business fits in more with Nelco than with Tata Power. Neclo is also on the approved list of MoD. And hence transfer of this SED to Nelco should not pose any problems. Once this restructuring happens, the financial performance of Nelco
would vastly improve.
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