It is a matter of common knowledge that Swelect Energy Systems (formerly Numeric Power Solutions) listed on both BSE and NSE has sold its UPS business to affiliates of Legrand France S.A. for an aggregate consideration of INR 829 crores (including USD 4.5mn for the Singapore subsidiary). Pursuant to announcement of the sale in early Feb '12, the stock did run up for a couple of days, hitting a high of 308/309. However, given that the deal was subject to various approvals and more importantly, owing to concerns about how the promoters would use the cash, the stock corrected shortly thereafter and was later transferred to T group. The stock is languishing at 260 levels with thin trading volumes.

Before I share my views on the company and how I see the story going ahead, I'd like to issue a caveat that I have always liked the company, as most value investors have and I own the stock, therefore, my views should be considered as biased.

I believe this is a perfect time to buy the stock.

First the situation angle for the 'positional traders' - April 10th (tomorrow) is the last date of consummation of the transaction, mutually agreed upon between Numeric and Legrand. Therefore, I would assume an announcement on this front and receipt of cash is imminent. I would also assume that calling of a board meeting for declaration of a special dividend (which the promoters have been clear will be the mode used to distribute some of the cash) is also imminent. While no one knows how generous these guys would be in terms of distribution of the cash, my personal take is that the dividend would be 125-150 bucks a share. The above announcements should be sufficient to result in a 50-60 buck up-move in the stock. The fact that the stock was transferred to T group should in fact be looked as a blessing in disguise as the speculative element built into the stock is therefore low.

Now the more important fundamental call for 'investors'. I have a positive bias towards promoters based in Chennai; given that they more often than not have corporate governance standards better than those prevalent in Hyderabad or Delhi and err on the side of conservatism rather than being adventurous. More specifically, I have always liked the Numeric management, given that like many other Chennai based companies, they have never been 'capital market savvy' and have built the entire business organically from internal accruals, without any dilution whatsoever, besides the negligible sum they raised through an IPO. That's an enviable track record to have for a promoter for sure. Moreover, promoters do not have any unrelated business interests (to my knowledge) and have stayed away from the temptation to invest in real estate and such areas (which is often seen as the easiest way to deploy large pools of capital). If one looks around for parallels, we have seen how Chennai based Amrutanjan has created value for shareholders post sale of some of its surplus assets.

If one looks at the flipside, markets gave a thumbs down to Piramal when they announced the sale of their business to Abbott and hammered the stock down to 340 levels but as clarity has emerged on some of their plans to deploy the cash, the stock did bounce back almost 40% from those levels. In case of Piramal of course, while I believe they will create shareholder value over the long-term, some of the calls they have taken are quite adventurous, to say the least - be it the Vodafone deal or be it direct lending to real estate companies from the listed company. (Yes, the latter is indeed true, although they haven't publicly spoken about it - interactions with their NBFC subsidiary clearly point in this direction). The extreme case would be companies promoted by relatively obscure promoters like Geecee Ventures (formerly Gwalior Chemicals), which have decided to use the book to invest in third-party businesses using a PE approach.

Coming to Swelect Energy (market cap ~INR 260 crores), here's how I would look to value the business: