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From SPANCO, Mr. Vidur Sehgal, CEO (Govt. and Power), Mr. Kaustubh
Dhavse, V.P. Strategy and the team shared their insight on the company
Key Highlights
n Spanco is currently focusing on the power division, which includes Nagpur distribution
franchisee and R-APDRP projects. After TCS, Spanco is India's 2nd largest player in
the R-APDRP projects.
n The company has won R-APDRP projects in 5 states (Bihar, Goa, Punjab, Maharashtra,
Chandigarh and Dakshin Haryana Vidyut) with its total order book at Rs6.6bn. RAPDRP
projects have an execution period of 1.5 years and thereafter, 5 years of
maintenance. The company has maintained its strategy of entering states with only
one electricity distributor, thereby enhancing its operational efficiency.
n Spanco has won a power distribution franchisee for Nagpur, Maharashtra. Spanco's
bid was the highest at Rs 53.50bn on NPV basis for 15 years. Distribution Franchisee
(DF) areas, where Spanco operates has 32% distribution losses (21% commercial
losses and rest is technical losses), which it expects to reduce to 8% in a span of 6-
7years. Its returns would depend on reduction in T&D losses and an increase in the
overall efficiency of power distribution.
n Spanco's subsidiary, in consortium with IL&FS Transportation Networks (ITNL) (49:51
JV) bagged a Rs11bn Madhya Pradesh border modernization project for 12.5 years
last fiscal. Civil infrastructure constitutes ~70% of the contract value while technology
forms the rest. The company, through its subsidiary, will incur Rs1.1bn of capex and
earn by executing IT outsourcing contracts. Further, the company is liable to earn
49paise per 1 rupee of incremental revenue generated through collection of services
charges, parking charges and miscellaneous commercial charges.
n Spanco entered into a five-year $40-45 million annual revenue run-rate contract with
Bharti Airtel to manage its captive BPO operations in Nigeria, Tanzania, Niger, Kenya,
Chad and Burkina Faso. BPO contribution was modest at 13% of FY10 revenues of
~Rs1.8bn. We expect meaningful revenue contribution to start in FY12 coupled with a
likely improvement in EBITDA margins, depending on the company's ability to derive
operational efficiencies.
Trades at 4.7xFY11 earnings
Spanco is currently trading at cheap valuations of 4.7x its FY11 EPS of Rs29. Huge debt on
the books (Rs7.9bn) remains an overhang. We believe that any improvement in balance
sheet and cash-flow would lead to re-rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
From SPANCO, Mr. Vidur Sehgal, CEO (Govt. and Power), Mr. Kaustubh
Dhavse, V.P. Strategy and the team shared their insight on the company
Key Highlights
n Spanco is currently focusing on the power division, which includes Nagpur distribution
franchisee and R-APDRP projects. After TCS, Spanco is India's 2nd largest player in
the R-APDRP projects.
n The company has won R-APDRP projects in 5 states (Bihar, Goa, Punjab, Maharashtra,
Chandigarh and Dakshin Haryana Vidyut) with its total order book at Rs6.6bn. RAPDRP
projects have an execution period of 1.5 years and thereafter, 5 years of
maintenance. The company has maintained its strategy of entering states with only
one electricity distributor, thereby enhancing its operational efficiency.
n Spanco has won a power distribution franchisee for Nagpur, Maharashtra. Spanco's
bid was the highest at Rs 53.50bn on NPV basis for 15 years. Distribution Franchisee
(DF) areas, where Spanco operates has 32% distribution losses (21% commercial
losses and rest is technical losses), which it expects to reduce to 8% in a span of 6-
7years. Its returns would depend on reduction in T&D losses and an increase in the
overall efficiency of power distribution.
n Spanco's subsidiary, in consortium with IL&FS Transportation Networks (ITNL) (49:51
JV) bagged a Rs11bn Madhya Pradesh border modernization project for 12.5 years
last fiscal. Civil infrastructure constitutes ~70% of the contract value while technology
forms the rest. The company, through its subsidiary, will incur Rs1.1bn of capex and
earn by executing IT outsourcing contracts. Further, the company is liable to earn
49paise per 1 rupee of incremental revenue generated through collection of services
charges, parking charges and miscellaneous commercial charges.
n Spanco entered into a five-year $40-45 million annual revenue run-rate contract with
Bharti Airtel to manage its captive BPO operations in Nigeria, Tanzania, Niger, Kenya,
Chad and Burkina Faso. BPO contribution was modest at 13% of FY10 revenues of
~Rs1.8bn. We expect meaningful revenue contribution to start in FY12 coupled with a
likely improvement in EBITDA margins, depending on the company's ability to derive
operational efficiencies.
Trades at 4.7xFY11 earnings
Spanco is currently trading at cheap valuations of 4.7x its FY11 EPS of Rs29. Huge debt on
the books (Rs7.9bn) remains an overhang. We believe that any improvement in balance
sheet and cash-flow would lead to re-rating.
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