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Tecpro Systems Limited - Growth “Pro”
Investment rationale
Order inflows surge post IPO - YTD INR33bn orders
The order book of Tecpro Systems Limited (“Tecpro”) stood at INR23bn at the
end of July 31, 2010 (disclosed order book at the time of initial public offer).
The company has seen a further surge in orders post IPO and new orders of
INR33bn have been bagged in this fiscal till date. The company has moved
from being a pure material and ash handling player to a complete balance
of plant (BoP) package provider.
Balance of plant to be the key driver of growth
Tecpro has won three BoP orders in the last two years. The same is expected to
pick up further in the next 1-2 years as a number of BTG (Boiler-Turbine-Generator)
contracts have been awarded or are in the process. The total expected addition
in XIIth FYP (five year plan) for thermal power plant is ~75-85GW. While BTG
orders of 50GW have already been placed, we expect the rest 25-35GW to
be tendered over the next year (incl. NTPC bulk tender I and II).
Leading player in Coal and Ash handling with high margins
Tecpro is one of the leading suppliers of coal and ash handling plants (CHP
and AHP). As per the CEA monitoring report, the company holds a market
share of ~19% (11 out of total 57 orders - 1st in the category) in CHPs, while
~15% (9 out of 59 orders - 3rd in the category) in AHPs.
Valuation and outlook
Tecpro is poised to capture the huge demand in the Indian power sector
through BoP segment in the coming years. We believe Tecpro is better placed
to capture the BoP orders compared to its competitors on account of its higher
market share in CHPs and AHPs. While the other three players (McNally,
TRF and Elecon) are trading at 10-11x on FY12e, larger players like BGR
Energy are trading at 14-16x. We have assigned a PE of 12x on FY12e EPS
(INR38) and arrived at our target price of INR458. The stock provides 22%
upside from the current levels.
Investment Rationale
Order inflows surge post IPO
Tecpro’s order book stood at INR23bn at the end of July 31, 2010 (disclosed order
book at the time of initial public offer). It has seen a further surge in orders post IPO
and new orders of INR33bn have been bagged in this fiscal till date. The current
order book of the company stands at INR46bn. Tecpro has moved from being a
material and ash handling player to a complete BoP package solution provider. The
recent wins of BoP orders from APGENCO for Rayalseema and Kakatiya of 600MW
has affirmed the capability of Tecpro to bid for BoP package of 600-800MW.
Further, these wins are significant considering the fact that Tecpro received its first BoP
order in Aug 09 from CGPCL (INR9.9bn for 500MW BoP). We consider this as a
positive development and expect it to garner new orders as majority of new power
plants are being set up in the size range of 600-800MW.
Higher order book to sales ratio
The order book to sales ratio of Tecpro stands at 2.7x at the end of 2QFY11. The
orders comprise primarily BoP, CHP and AHP. The execution cycle for these orders is
in the range of 18-30 months. Hence, the visibility of the revenue for the next two
years is very high.
Reaffirming credentials as a BoP player
Tecpro has successfully moved into BoP space with a contract worth INR9,930m by the
Chhattisgarh State Power Generation for a 1x500MW thermal power plant at Korba
West in Aug 2009 in consortium with Gammon India and VA Tech Wabag. Further, it
has won two orders for BoP from APGENCO for Rayalseema and Kakatiya Power Plant.
Balance of plant to be the key driver of growth
Number of BoP orders is expected to ramp up in the next few years. Order for the BTG
packages for power plant coming up in XIIth FYP has gathered pace in the last few
quarters. The total expected addition in XIIth FYP for thermal power plant is expected
to be 75GW. Out of which, BTG orders of 50-60GW has been already placed till
date. BoP orders for these power plants will come up for bidding in next couple of
years. We expect Tecpro systems to be one of the largest beneficiaries for these BoP
orders in terms of direct BoP orders or coal handling plant and ash handling plant
orders. Even at a conservative estimate of INR12-15m/MW, the annual market size
for the BoP would be in range of INR180-225bn.
Leading player in Coal and Ash handling
Tecpro is leader in providing solutions for coal handling and ash handling system for
thermal power plants in India. As per CEA monitoring report of 26th May, 2009, the
company had highest number of orders of 11 coal handling plants out of 57 orders
placed by thermal power plants getting commissioned in XIth FYP. Similarly, Tecpro
has 9 orders of ash handling plant out of 59 orders placed by plants being
commissioned in XIth FYP.
Entry barriers
Tecpro has technical collaborations and license agreements with international
companies including FAM Magdeburger Forderanlagen und Baumaschinen GmbH,
Germany, Maschinenfabrik Liezen und Giesserei GmbH, Austria, PEYTEC Material
Handling GmbH, Austria and Won Duck Industrial Machinery Company Limited,
Korea. The pre-qualification requirements for material handling contracts include track
record, technology availability and net worth. These technical collaborations act as
entry barrier for the new players in the coal handling plant and ash handling plant.
Opportunities in other sectors
There are significant opportunities in steel, cement, port and sugar sectors for material
handling players. 21% of Tecpro’s order book as on July 31, 2010 comprises material
handling orders from sectors other than power. The order book has grown at a CAGR
of 20% from FY07 to FY10 while the revenue from other sectors has grown by ~42%
CAGR from INR969m to INR2,800m.
Tecpro is expected to garner a large portion of material handling orders. There are
only three to four direct competitors to Tecpro in CHP and AHP space. The investment
in power generation, steel and cement would be key driver for the new orders.
Valuation and outlook
Tecpro is poised to capture the huge demand in the Indian power sector through BoP
segment in the coming years.
We believe Tecpro’s higher market share in CHPs and AHPs (two of the most important
components in BoP segment), has placed it in a better way than its competitors.
While the other three players (McNally, TRF and Elecon) are trading at 10-11x on
FY12e, larger players like BGR Energy are trading at 14-16x. We have assigned a PE
of 12x on FY12 EPS (INR38) and arrived at our target price of INR458. The stock
provides 22% upside from the current levels.
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