India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
BUY Tecpro Systems Ltd (TPRO)
Company update Backlog up 90% in 1 month, PER of 10x FY12F
Recently, TPRO secured new orders of Rs22bn from power sector
customers, which increased backlog to Rs39bn. During our meeting,
the company told us that it would raise new debt to fund working
capital over the next 2 years. We fine‐tune our earnings forecast for
FY11/12 on increased interest expense. We maintain BUY given 35%
FY12F EPS growth and 20% ROE. Currently, TPRO trades at 20%
below avg. sector PER due to lack of coverage.
New orders of Rs22bn in the past 1 month
Over the past 1 month, TPRO secured 4 new orders. This includes a
Rs19.7bn order from the Andhra Pradesh (AP) gov’t for construction
of 2 power plants. This work entails GM of 21%, in line with overall
margin. Although this work accounts for 50% of the total backlog, it
will contribute 25% to FY12 earnings because the order would be
completed in 30 months. TPRO is confident of smooth execution of
the project despite political overhang in AP
Earnings growth of 18% in FY11F, 35% in FY12F
The FY11F backlog of Rs39bn secures earnings for the next 2 years.
FY11 GM will rise 200bp to 22.6% on execution of high‐margin power
plant work. We expect margin to stabilize at 22% in FY12 because of
execution of increased material handling work which has less margin.
D/E to remain stable at 1x
Through FY12, TPRO will require Rs7bn to execute the large backlog.
Of this, it will fund Rs2.3bn from the IPO proceeds and balance from
new debt. TPRO’s net debt will rise to Rs8.4bn in FY12 from Rs3bn in
FY10. However D/E will remain stable at 1x. We reduce our EPS forecast
for FY11 by 3% and FY12 by 6% because we expect TPRO’s interest
expense to increase to Rs2bn in FY11 from Rs714m in FY10.
Presents 50% potential upside from current market price
Our TP of Rs543/sh is based on PER of 14x FY12F.
TPRO prefers fixed‐priced contracts over contracts having price
escalation clauses. The company secures gross margin on 75% of a
contract by placing orders for the outsourced components within 2
months after securing an order. The company includes price
escalation clauses in its contracts for steel and cement, which
constitute the balance 25%.
Last month, TPRO secured a large contract of Rs19.7bn from
APGENCO, owned by AP. Although AP has been passing through
political instability in the past 1 year, we believe TPRO’s order would
be completed as scheduled (30 months) because: 1) the power
project has already secured funding; and 2) Bharat Heavy Electrical
(BHEL), another contractor, has started installation of power
boiler/turbine/generators, which account for 50% of a power plant’s
total work. TPRO will start execution next year and could complete
35% of work. This will account for 27% of revenue and 25% of
earnings in FY12. Balance will be executed in FY13/14.
TPRO’s H1 revenue was Rs6bn or 30% of our full‐year forecast of
Rs21bn. We expect H2 revenue to account for 70% because a major
portion of the backlog would be executed in this period. This
seasonality is in line with the company’s past performance.
No comments:
Post a Comment