Eon Electric-trading at 1/4th of its free cash on balance sheet

When an Edelweiss stock screener popped up this stock as one with low P/BV, low P/E, 52 week low etc; it triggered my attention to look beyond the screen, and delve into the annual report. And I was not disappointed. The company had sold its fusegear business to a French Co for around 530 crores, and therefore was sitting on cash worth around Rs 280 crores(w/o considering other investments, net current assets, negligible debt). And unlike the typical Indian holding companies, the promoter does not have other listed group companies to sink that cash in. So why is the market valuing the stock at just Rs 68 crore?
From my analysis, some reasons are

• Cash burn:-Since they divested their crown jewel, they are making quarterly losses of around Rs 6 crore. That is not too surprising
• Poor use of surplus cash:-The surplus cash is invested in FMPs/debt plans. Even at a conservative 7% short term rate, their quarterly income should be around Rs 5 crores. But they show other income of just 2.2 crores or so, leaving a gap to be explained
• No promoter buyback from open market:-Despite the huge valuation gap, the promoter has not tried to increase its stake from the open market. This is surprising. Also, the company announced a buyback in Oct-11, only to abruptly withdraw it at the month end
• Poor/investor unfriendly disclosures:-They do not update their website with the quarterly results. There are no conference calls or investor relations presentations. Shareholders would be eager to know the management's intent to use surplus funds, but the company is mum
• Low institutional holding:-A FII even sold off its major stake last month. Of course, they tend to follow the herd mentality, so it is not so much of an issue 

However, some positives are

• Management recent preferential allotment at Rs 70:-While this was a fait accompli since the conversion price was below the market price prevailing then, it would still give the management incentive to boost the share price
• Promoter holding just 45%:-This does not confer a stranglehold, and leaves room for some investor activism
• Postal ballot for diversifying business:-The management has announced its intention to change the line of business, and invest the cash there. This should improve the valuation/

My take:-One does not often get to buy a Rs 100 note for just Rs 25. Such opportunities are  rare to come buy, and should be grabbed, in view of the positives outlined above. I know this does not fit the criteria outlined in the earlier post, but this was just too juicy to pass over.
Credits:-Thanks to my IIMA classmate and friend Gaurav Singhal(http://gauravsinghal.wordpress.com) for helping build the argument,and discussions on this topic