Tuesday, January 8, 2008

SPEL SEMICONDUCTOR LTD., CHENNAI

SPEL SEMI CONDUCTORS LTD.
EARLIER KNOWN AS SPIC ELECTRONICS LTD.
BSE SCRIP CODE NO. 517166

SPEL Semiconductor Ltd. is a company belonging to SPIC group of Tamil Nadu. Their other group companies are SPIC (earlier Southern Petro Chemical Industries Ltd.), Tamil Nadu Petroproducts, Manali Petro Chemicals Ltd., Henkel India Ltd., SICAL Logistics, to name a few.
The company was initially called SPIC Electronics but has since been renamed as SPEL Semiconductor Ltd.
SPEL Semiconductor Limited is the leading one-stop turnkey Wafer Sort, IC Assembly & Test subcon facility in India. Established in 1988 and headquartered in Chennai, SPEL had been serving the local market from 1988 to 1994. Having established a track record at home, SPEL turned its attention to the more demanding global market in 1995. It has since been exclusively serving the Silicon Valley and other parts of the world for over 12 years now. SPEL focuses on Lead frame based Packages - both Surface mount & Through hole.
As a specialty, SPEL offers onsite & offshore Test Engineering support to Customers. SPEL ensures better interaction & services to Customers through a Sales & Technical support office based at Santa Clara, USA.
OUR ANALYSIS
SPEL was earlier reeling under regular losses and there were accumulated losses. During the FY 2006-07 the performance of the Company has improved multifold and the entire accumulated losses of the Company have been wiped off during the first half of FY 2006-07. THUS THE COMPANY PRESENTS AN EXCELLENT TURN AROUND STORY. SINCE THE SECOND HALF OF 2006-07, THE COMPANY’S PERFORMANCE HAS IMPROVED SEQUENTIALLY. During the year under review, the Company has been chosen by theglobal Customers for their strategic investments. Management is cashingon this opportunity to rope in more Customers under this plan ofoperation. This will not only ease the Company’s fundingrequirements, but will also make the Customer committed for volumes. During the year under review, Hon. Finance Minister, Mr. P.Chidambaram, inaugurated the Company’s launch of a new Leadless Moldedpackage (LMP). This is a niche package and will generate higher revenueand PAT. This package will go into applications where size, weight,and performance matters and has a good market potential. Towards theend of the year under review the Company has successfully obtained aTerm Loan from IOB to the tune of Rs.17 Crores. The Company has applied to Central Government for formal approval toestablish the Special Economic Zone after getting the StateGovernments approval. The Company is looking at various options ofestablishing SEZ including, collocating some of the outside Companies,whereby optimal benefit and its vision is achieved. SEZ will be arevenue generator to the Company. SEZ will accommodate some of theCompanies who have expertise in high end packages. This will not onlycomplement the Company’s activities but will also address logistics
and eco system part of the industry.

SPEL ICs are used globally in consumer electronic applications (such as
Cell Phones, PDAs & Digital Cameras), Desktop PCs, Notebook Computers
& Automobiles. The company was earlier supplying to Indian markets but
presently, the major buyers are from abroad. As is the case with all export
companies presently, the adverse rupee dollar rate is taking its toll slightly.

The newly installed packages have considerably increased
SPEL`s attractiveness globally. The sustained performance will drive SPEL
to excel due to the strong demand experienced by its existing Customers.
Hence the outlook is bright.Being the First & only semiconductor IC Assembly & Test Company in India,
SPEL has consistently delivered as per its commitments and has hence
been able to move ahead in its growth plan. SPEL is appreciative of the
Government’s efforts toward coming up with the Semiconductor policy, and
hopes that the policy will be made attractive enough to develop the
eco-system within India.The Government’s Semi Conductor policy is very favourable and it is expected
that SPEL will benefit most from it. Besides the above, the company’s
SEZ venture near Chennai will be an added advantage. This will greatly
boost up the profitability in long times to come.

The company has shifted its office from a posh central Chennai location
to the factory premises and it is widely believed that this will result
in substantial cost cutting efforts.

All the above factors show a strong and bright future for SPEL.With an increasing Customer base to its credit, SPEL is surging ahead
speared by an experienced Management, dedicated Employees, excellent
vendor relations and a very good profitability track record.


The company has come out excellent 2nd quarter (Sept. 07) numbers. The net profit has grown by 60% on year on year basis. Once the full year’s profits are out, the EPS for FY 2008 could be well over 2. The present prices have discounted the future EPS considerably and the present valuations are very cheap.
The Operating Profit Margin (OPM) and Net Profit Margin are growing sequentially on QOQ basis. With the increasing trend in all parameters of profitability, the share price will move from the present levels of around to at least 40 by April 2008 (by the time full year’s results are announced).
It is believed that the company is going to place shares with foreign investors within one year. The price is not decided yet, but it is believed that it will be at a premium. This premium will add up to the reserves and consequently the book value and share price will show an appreciation. This factor and the SEZ plans near Chennai will give a further impetus to the share price movement.

We are, therefore, bullish on this stock and give a strong recommendations to purchase the same at the current price of around 23. The share saw a year’s high of 37 and low of less than 20. It is, therefore, almost near the low levels. If the share is held for at least 2 years, we can expect a price levels of at least 60.00.

Presently the share is in T segment which means all transactions should be delivery based. There will be no operator driven movement. The circuit filter level will be 5%. This means all the transactions are showing accumulation. Once the share is moved from T segment to normal transaction cycle, the price will start inching upwards.

MAJOR PLUS POINTS

i) Promoters are holding fairly high level of shares (over 56%). This is considered good.

ii) The company’s products have found increased acceptability the world over.

iii) It is an excellent turn around and growth story.

iv) The company has a subsidiary in USA which is looking after the marketing needs. This takes care of the logistics in export related activities.

v) Rupee has appreciated considerably. At some point of time, dollar will appreciate or the Government will have to intervene to keep the parity rates to favour exporters. This will result in more profits for the Company.

vi) The SEZ, if fully operationalised, will provide an excellent platform for the company to increase its overall economic activity.
OUR OVERALL VIEW In our overall assessment, we find that the positive points outweigh the negative points. Kindly take into account the following article :
So, the share can be accumulated with a clear holding period of 2 years.

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