Buy TECHNO ELECTRIC & ENGINEERING COMPANY LTD at CMP and add on dips Rs 325 – Rs 340 :: HDFC Securities

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Incorporated in 1963, Techno Electric and Engineering Company Limited (Techno) is headquartered in Kolkata. Historically,
Techno has been an EPC company present in the entire value chain of generation, transmission and distribution. The
company’s scope of work includes turnkey projects ranging from complete power generating plants to system packages for
plant. It also does EPC work for electrical system across generation, transmission & distribution up to 765 KV and tailored
power solutions for industries such as aluminum, petrochemicals etc. It has completed and delivered 280+ projects in
existence (up to 31 March 2014). It is also Wind Energy Business and BOOT & BOOM segments.
Key Rationale:
 Impressive client list & Robust order book
 EPC revenues to be led by the substation market
 Huge Opportunity size and latent Demand in Transmission sector
 Wind Power – diversification play to offset cyclicality in EPC business
 BOOT in transmission could open up annuity revenues for the company
Outlook & Conclusion:
In a short span of four years, the Company has established leadership in the 500-plus kV space; with a formidable 60 per cent
share in the value-added 765 kV segment Company expects to reach a turnover of Rs 2000 cr in the next five years. Company
has an almost leadership position in EPC business of the transmission segment with most larger players like ABB, Siemens,
BHEL concentrating more on the equipment/product part of the segment. Company expects its SEB business to do well. Since
the orders are mostly on bilateral platform receiving payments on time would not be an issue.
Techno is also focusing on improving its international revenues (which is at present just 4%). This would also help in improving
margins of the company as typically foreign orders have relatively higher margins than domestic ones. Also, if the company is
able to find a buyer for its Wind Energy business which is not getting the desired momentum due to regulatory hurdles, ROEs
of the company can improve in the future.
We feel Techno could be one of the major beneficiaries of the pick-up in the EPC demand in the power sector. Investors could
look to buy the stock at CMP and average at band of Rs 325 –Rs 340 (11.5-12xFY16E) for sequential targets of Rs 425 and Rs
467 (15xFY16E EPS - 16.5xFY16E EPS) in the next 2-3 quarters

LINK

http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010445