TECHNO ELECTRIC & ENGINEERING Roburst quarter:Edelweiss

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􀂃 Numbers in line; power subsidiary starts to contribute
Techno Electric & Engineering’s (TEE) Q2FY11 results were in line with our
expectations primarily led by strong growth in the power subsidiary, Simran Wind.
Consolidated revenue grew 18.4% Y-o-Y to INR 2,068 mn as the energy segment
(17% of total revenue) grew 36.7% Y-o-Y to INR 354 mn. The EPC segment (83%
of total revenue) also recorded moderate growth of 15.3% to INR 1,714 mn. The
standalone revenue (which houses the EPC business and the 45 MW wind power of
the erstwhile Super Wind) grew 13.2% Y-o-Y to INR 1,871 mn. Reduced raw
material cost (down 204bps to 61.8% of sales) and other expenses (down 243bps
to 6.2% of sales) helped the company report a 462bps improvement in margin.
The consolidated EBITDA recorded robust growth of 40.5% Y-o-Y to INR 609 mn.
Standalone EBTIDA grew 14.4% Y-o-Y to INR 413 mn on back of 24bps Y-o-Y
margin improvement to 22.1%. Sharp fall in other income hit the company’s PAT
as it reported PAT growth of 24.5% Y-o-Y to INR 446 mn on consolidated basis. On
standalone basis, TEE reported decline of 5.5% to INR 330 mn. It recorded order
inflow of INR ~3 bn during H1FY11, taking order backlog to INR 12.4 bn.


􀂃 Renewable energy portfolio to expand to 357 MW
The company’s wind energy portfolio stands at 95 MW. It plans to add 6 plants of
10MW of biomass power plants in West Bengal (3 plants), Orissa (1 plant),
Madhya Pradesh (1 plant) and Rajasthan (1 plant). TEE has also placed an order
for additional 202 MW of wind turbines. We expect its renewable energy portfolio
to touch 250MW by FY12E and 357MW by FY13E. It plans to have 1,250 MW of
renewable energy portfolio by FY17.

􀂃 Outlook and valuations: Positive; maintain ‘BUY’
On the back of increased contribution expected from the power business, we
have increased our EBTIDA margin estimate by 361bps and 411bps for FY11 and
FY12, respectively. We have also reduced the other income as cash gets
deployed towards the power business to arrive at 5.8% and 7.5% increase in
PAT for FY11E and FY12E respectively. TEE is increasing its exposure to the
utility space. While RoCEs in utility are relatively lower than EPC, its free cash
flows complement TEE’s working-capital-intensive EPC segment. On our revised
consolidated EPS of INR 24.1 and INR 28.2, the stock is trading at P/E of 16.7x
and 14.2x FY11E and FY12E, respectively. We maintain ‘BUY’ on the stock.