Diamond Power Infrastructure: Scorching Growth!

Diamond Power Infrastructure, which is engaged in manufacturing of power cables and transmission towers, has been growing at a scorching past over the past few years and the future looks good as well. Diamond Power‘s 3 Yr CAGR Sales have grown at 36.48% while it’s 3 Yr CAGR Profit has grown by 51.55%. Diamond Power‘s Return on Equity is a high 31.70%.

Diamond Power reported very good Q1 FY 2011 results. Diamond Power‘s sales in the Quarter ended June 2010 surged 124.65% to Rs. 381.61 crores as compared to Rs. 169.87 in in the Quarter ended June 2009. Diamond Power‘s operating income in the Quarter ended June 2010 surged 126.19% at Rs. 54.59 crores as compared to Rs. 25.29% in the Quarter ended June 2009. Diamond Power‘s Net Profit also kept pace by rising 123.80% to Rs. 31.22 crores in Q1 FY 2011 as compared to 13.95 in Q1 FY 2010.

Diamond Power‘s EPS in Q1 FY 2011 soared to Rs. 11.13 as compared to Rs. 6.63 in Q1 FY 2010. Even on a sequential basis, Diamond Power‘s returns were very attractive.

Diamond Power‘s success story appears to have more strength. Diamond Power‘s MD Amit Bhatnagar told CNBC-TV18 that Diamond Power had secured an order worth about Rs. 96 crores from Gujarat Urja Vikas Nigam, a leading power utility in Gujarat. Diamond Power has to supply transmission conductors to this Utility. Diamond Power‘s existing order book position after this order is about Rs 1,090 crores. Diamond Power will complete this order book in the next ten months. Diamond Power is expecting good revenues to come in from its extra high voltage cable and medium voltage cable business. Diamond Power is also expecting good revenues to come in from its’ EPC business. Diamond Power expects to get more orders between May to November as tenders begin to be decided by the power utilities. Diamond Power will have a very comfortable and good order book position.

In the transmission conductors business, Diamond Power traditionally manages to get around 13% to 14% on EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) basis. While this margin is not high for EBITDA, it is reasonable given the nature of the Industry and the margins of competitors. Diamond Power has a price escalation clause with its customers which enables it to pass on the increase or decrease in price to the customers. The result is that Diamond Power‘s contribution remains constant. However, if raw material prices go down Diamond Power‘s EBIDTA margin is bound to improve.

Diamond Power has been on an expansion spree to increase its capacity. Diamond Power invested over Rs 275 crores and almost all the projects went on stream in the month of February.

Diamond Power expects a turnover of about Rs. 1400 to 1500 crores in FY 2011. If Diamond Power‘s EBITDA margins are about 13%, the EBITDA will be close to Rs. 182 to 195 crores.
On the basis of Diamond Power‘s FY10 earnings per share (EPS) of Rs 23, the current CMP of Rs. 237 is discounted 10.30 times which is quite reasonable.

In July 2010 Diamond Power Infrastructure raised Rs 114 crore via a QIP by alloting about 55.9 lakh shares at Rs 203.80. Diamond Power also did a preferential share allotment of shares worth Rs 18 crore to Kotak Private Equity and another fund of Kotak. In total Diamond Power has raised Rs 132 crore. The fund raising exercise was intended to strengthen Diamond Power‘s balance sheet for deploying money on long term working capital and also to look at inorganic opportunities. Diamond Power‘s equity is diluted by around 62.5 lakh shares which is approximately 20% of Diamond Power‘s paid up capital.

Apart from Kotak Private Equity which holds 10% of Diamond Power, Private Equity Firms Clearwater Capital holds nearly a 15% stake in Diamond Power. Other investors in Diamond Power include Alchemy India Long Term Fund Ltd and Reliance Infrastructure Ltd.