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�� Numbers below estimate; wind business drags earnings
Techno Electric & Engineering’s (TEE) Q3FY11 consolidated results were below our
expectations, primarily due to lower generation at Simran Wind, given seasonal
nature of the wind business besides de-growth in the EPC business. The company
reported revenue de-growth of 8.6% Y-o-Y, to INR 1,526 mn, as the energy
segment (6% of total revenue) de-grew 37.9% Y-o-Y, to INR 98 mn, while EPC
(87.7% of total revenue) recorded moderate de-growth of 5.5% to INR 1,428 mn.
EBITDA grew 1.6% Y-o-Y, to INR 373 mn, on the back of improved operating
performance. EBTIDA margin improved 245bps Y-o-Y, to 24.4%, due to significant
fall in raw material prices (down 513bps Y-o-Y to 61.9% of sales) even as other
expenses increased (up 197bps Y-o-Y to 10.4% of sales). Sharp increase in
interest expenses (up 54.6% Y-o-Y), together with reduced other income (down
17.2% Y-o-Y), impacted consolidated PAT that de-grew 17.2% Y-o-Y to INR 236
mn. For 9mFY11, consolidated revenues grew 7.5%, to INR 5,188 mn, while
EBTIDA grew 24.3% to INR 1,347 mn. OPM improved 351bps, to 26.0% for
9mFY11, while PAT grew 0.2% to INR 929 mn. The company recorded order inflow
of INR 2.5 bn during Q3FY11, taking the order backlog to INR 12.5 bn.
�� Renewable energy and transmission business plans
The company’s wind energy portfolio stands at 95 MW. It has placed an order for
additional 202 MW of wind turbines at a total capex of INR 11.5 bn. The first phase
of 100 MW is expected to be completed by June/ July 2011 in Tamil Nadu, while
the second phase is likely to get over by March 2012 in Gujarat. TEE plans to have
1,250 MW of renewable energy portfolio by FY17. Having bagged the first PPP
contract to build the transmission line in Haryana, the company is looking at
enhancing its transmission network portfolio to five projects by the end of Twelfth
Five Year Plan, hoping to bag one project each year.
�� Outlook and valuations: Positive; maintain ‘BUY’
We like the business model of TEE, given its conservative approach for bagging
new orders, focused on the bottom line. With competition intensifying in the EPC
business, we believe, TEE is unlikely to engage in unhealthy competition. Its
increased focus on the utility space (both wind power and transmission network) is
expected to provide the much required steady cash flows towards for the capital
intensive EPC business. The stock is trading at P/E of 11.6x and 9.9x FY11E and
FY12E, respectively. We maintain our ‘BUY’ recommendation on the stock.
�� Company Description
TEE was incorporated in 1963 by the Mohankas of Jamshedpur. It was taken over by Mr. P.
P. Gupta and Mr. C. L. Chamaria. Mr. Gupta became the sole promoter of TEE after Mr.
Chamaria’s resignation from the board in 1995. The company addresses EPC in power
generation, power transmission and distribution, and industrial sectors. It addresses ~17–
20% of the total project requirements of power generation plants. For transmission
systems, TEE has the capability to address about ~25% of a project’s requirement. It has
been involved in one capacity or the other in the setting up of over 50% of the power
generating capacity in the country (more than 50,000 MW). It has been involved in setting
up/extension bays of ~52 substations (of the ~106 substations) of PGCI-expand.
�� Investment Theme
India is expected to add ~60,000 MW of generation capacity in the Eleventh Plan. As TEE
has the expertise to cater to ~17–20% of the total spend required in power generation
plants, its addressable market in the vertical is expected to grow ~183% in the Eleventh
Plan (compared to Tenth Plan) to ~INR 450 bn, given the planned increase in generation
capacity. PGCIL is likely to increase its transmission spend ~3x in the Eleventh Plan
compared to the Tenth Plan period. We believe, this increase in spend is likely to increase
TEE’s addressable market in the Eleventh Plan. Also, the company is increasing its
presence in the renewable energy market as it develop green power through its wind and
biomass power plants. It has plans to increase its renewable energy portfolio to 1,250 MW
by FY17.
�� Key Risks
All EPC contractors in the power sector space run the risk of not executing in stipulated
specifications and time frames. Capacity expansion in the power generation sector in the
Eleventh Plan is likely to be higher than in the Eighth, Ninth, and Tenth Five-Year Plans put
together. Hence we believe any slowdown in these generation projects shall negatively
impact the company.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
�� Numbers below estimate; wind business drags earnings
Techno Electric & Engineering’s (TEE) Q3FY11 consolidated results were below our
expectations, primarily due to lower generation at Simran Wind, given seasonal
nature of the wind business besides de-growth in the EPC business. The company
reported revenue de-growth of 8.6% Y-o-Y, to INR 1,526 mn, as the energy
segment (6% of total revenue) de-grew 37.9% Y-o-Y, to INR 98 mn, while EPC
(87.7% of total revenue) recorded moderate de-growth of 5.5% to INR 1,428 mn.
EBITDA grew 1.6% Y-o-Y, to INR 373 mn, on the back of improved operating
performance. EBTIDA margin improved 245bps Y-o-Y, to 24.4%, due to significant
fall in raw material prices (down 513bps Y-o-Y to 61.9% of sales) even as other
expenses increased (up 197bps Y-o-Y to 10.4% of sales). Sharp increase in
interest expenses (up 54.6% Y-o-Y), together with reduced other income (down
17.2% Y-o-Y), impacted consolidated PAT that de-grew 17.2% Y-o-Y to INR 236
mn. For 9mFY11, consolidated revenues grew 7.5%, to INR 5,188 mn, while
EBTIDA grew 24.3% to INR 1,347 mn. OPM improved 351bps, to 26.0% for
9mFY11, while PAT grew 0.2% to INR 929 mn. The company recorded order inflow
of INR 2.5 bn during Q3FY11, taking the order backlog to INR 12.5 bn.
�� Renewable energy and transmission business plans
The company’s wind energy portfolio stands at 95 MW. It has placed an order for
additional 202 MW of wind turbines at a total capex of INR 11.5 bn. The first phase
of 100 MW is expected to be completed by June/ July 2011 in Tamil Nadu, while
the second phase is likely to get over by March 2012 in Gujarat. TEE plans to have
1,250 MW of renewable energy portfolio by FY17. Having bagged the first PPP
contract to build the transmission line in Haryana, the company is looking at
enhancing its transmission network portfolio to five projects by the end of Twelfth
Five Year Plan, hoping to bag one project each year.
�� Outlook and valuations: Positive; maintain ‘BUY’
We like the business model of TEE, given its conservative approach for bagging
new orders, focused on the bottom line. With competition intensifying in the EPC
business, we believe, TEE is unlikely to engage in unhealthy competition. Its
increased focus on the utility space (both wind power and transmission network) is
expected to provide the much required steady cash flows towards for the capital
intensive EPC business. The stock is trading at P/E of 11.6x and 9.9x FY11E and
FY12E, respectively. We maintain our ‘BUY’ recommendation on the stock.
�� Company Description
TEE was incorporated in 1963 by the Mohankas of Jamshedpur. It was taken over by Mr. P.
P. Gupta and Mr. C. L. Chamaria. Mr. Gupta became the sole promoter of TEE after Mr.
Chamaria’s resignation from the board in 1995. The company addresses EPC in power
generation, power transmission and distribution, and industrial sectors. It addresses ~17–
20% of the total project requirements of power generation plants. For transmission
systems, TEE has the capability to address about ~25% of a project’s requirement. It has
been involved in one capacity or the other in the setting up of over 50% of the power
generating capacity in the country (more than 50,000 MW). It has been involved in setting
up/extension bays of ~52 substations (of the ~106 substations) of PGCI-expand.
�� Investment Theme
India is expected to add ~60,000 MW of generation capacity in the Eleventh Plan. As TEE
has the expertise to cater to ~17–20% of the total spend required in power generation
plants, its addressable market in the vertical is expected to grow ~183% in the Eleventh
Plan (compared to Tenth Plan) to ~INR 450 bn, given the planned increase in generation
capacity. PGCIL is likely to increase its transmission spend ~3x in the Eleventh Plan
compared to the Tenth Plan period. We believe, this increase in spend is likely to increase
TEE’s addressable market in the Eleventh Plan. Also, the company is increasing its
presence in the renewable energy market as it develop green power through its wind and
biomass power plants. It has plans to increase its renewable energy portfolio to 1,250 MW
by FY17.
�� Key Risks
All EPC contractors in the power sector space run the risk of not executing in stipulated
specifications and time frames. Capacity expansion in the power generation sector in the
Eleventh Plan is likely to be higher than in the Eighth, Ninth, and Tenth Five-Year Plans put
together. Hence we believe any slowdown in these generation projects shall negatively
impact the company.
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