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Indo Asian Fusegear / Eon Electric


Indo Asian Fusegear sold its switchgear business to Legrand France last year.  It now plans to deploy the proceeds into the power generation business and has renamed itself ‘Eon Electric’.  The rest of the operating segments are related to power generation i.e. cables, wiring, lighting, energy metres etc.  These segments comprise about 1/3rd the size of the business before the sale.

The sale of a substantial portion of its former business makes past performance irrelevant.  The company had about 290cr of liquid assets (as at 30th September, 2011) at its disposal for its new venture(s).

Management has no track record in the business they have committed to invest the funds in, thereby increasing the risk of loss.  The power sector is plagued by SEB insolvencies, government dictated tariffs, high debt burdens and overcapacity.  

Although this does not preclude management from making a good deal with the cash resources, the lack of an established track record would appear to weigh heavily against them in an appraisal of the business.

Furthermore, management allotted preferential warrants to themselves at a price of INR 70 in 2010.  This appears questionable from the minority shareholders’ perspective.  Why would management raise finance when the company was flush with cash?  The sorry conclusion appears to be that it intends to take advantage of the share price at the expense of minority shareholders; for the warrants will increase managements’ ownership stake in the company.  If they truly were concerned about minority shareholders, a buyback or dividend would’ve been appropriate.
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