Techno electric engg ltd


(Hitesh Patel) #1

TECHNOELECTRIC ENGINEERING LTD. Cmp 220 (Market cap around 1260 crores).

Techno Electric Engg Co is involved in the following business segments.

1. EPC Turnkey projects ranging from complete power generation plants to system packages of plants tailored to complement larger systems supplied by others.

Electrical systems across Generation, transmission and distribution upto 765 KV.

Tailored power systems for industries such as aluminium, petrochem etc.

Order book of the segment as on sep 11 was 1200 crores.

2. Renewable energy â operates around 110 MW wind energy assets and plans to expand further. Plans to enter bio mass, solar and hydro energy sectors. Company has plans to reach a capacity of 499 MW by fy 13 and 1250 MW capacity in Wind energy by 2017. As per the company announcement on bse recently the companyâs capacity now stands at 196 MW as on Oct 11. The company intends to increase the capacity by around 150-200 MW annually.

3. Transmission â Won a 25 year (extendable by 10 years) concession in consortium with Kalpataru Power for transmission link at Jhajjar Haryana.

FINANCIALS

EQUITY 11.4 CRORES (FACE VALUE OF EACH SHARE Re 2)

Book value 80

Debt as on sep 11 is at 693 crores. Cash and bank balances around 68 crores

LAST FEW YEARS RESULTS

Year

05

06

07

08

09

10

11

H1fy11

H1fy12

Sales

112

250

352

430

486

702

715

366

427

NP

5

12

28

50

63

116

112

69

83

Eps

1.9

2.6

5

8.7

11

20.7

19.8

12.14

14.56

ROE has been around 25%

ROAE is above 30% since past 5 years.

.

PROMOTER HOLDING 55%

POSITIVES

Strong growth in the past and expected in future

Good capital utilisation reflecting the managementâs vision

With a lot of emphasis on the power generation by govt, co will not be short of orders

With scarcity in the availability of coal and higher crude prices, alternative energy sources like wind energy might assume more importance.

Profits from the wind power segment are likely to accelerate growth in profits. Gross profit from energy segment for half year ended sep 11 was at 39 crores (out of gross profit of 77 crores) as against 27 crores (out of total gross profits of 60 crores) for half year ended sep 10.

NEGATIVES:

While the company has been showing steady growth in the EPC business the growth in the wind energy business needs to be monitored. The transmission project also expected to start from dec 11.

Debt has been gradually increasing because of investment into wind power assets.

Looking at the fundamentals, the stock could be a good investment opportunity on declines.

INVESTMENT THEME

The broad investment theme in Techno Electric Co is aimed at investing in a company that is present in the EPC segment, and is planning to expand into a sunrise sector of wind energy. Along with EPC segment, the transmission project is likely to provide sustained cash flow to the company and the company is using these cash flows to augment its wind and other alternative energy assets which are likely to generate good returns in the future.


(OMPRAKASH) #2

The targets are too ambitious and high.They targets 1250 Mw of power by Fy 17.So in a period of five years 1250*8=10000 Cr.Is it possible.In the present conditions is it viable to go for such a huge investments that too in regulated low ROE projects.

There are some companies like Savita and Karma energy if we want to consider in alternate energy assets.For ex Karma energy has already 30 Mw wind power and 3.5 MW hydel power.Promoters are weizmann group.It is developing another 6.5 Mw hydel plant going to installed by last Qy.All this will come for 20 cr Market cap.Yesterday it announced bumper results.Almost 6.5 eps announced.Div 5 per.Price 17.5.


(Hitesh Patel) #3

For karma ispat the dividend on bse is mentioned as 50 paisa per share which doesnt seem to be great shakes. Results shown by karma ispat look interesting but needs to be watched for next few quarters to ascertain whether the kind of growth and profitability shown continues.

Regarding comparision techno with a wind power capacity of 196 MW is much bigger player with the additional benefits of promoters who have been in the field for many years.

Regarding investments they have roped in some foreign fund house for part of the project. Plus the cash flow from epc and transmission business is likely to keep funding the wind energy assets.

the risk that you mention however remains of heavy investment in the wind energy sector but looking at the improving profitability shown by the energy division as shown in the segmental results, it seems the company has taken a calculated gamble to invest in wind energy assets in a calibrated manner. So there should not be sudden mounting of debt.


(OMPRAKASH) #4

Hitesh bhai,name of company i mentioned is Karma Energy.Here i just quoted it because valuation mismatch is there.If we just took a glance for 30 MW wind assets and 3.5 Mw hydel power i think minimum 250 cr is required.After deducting debt minimum value we can give is approx 150 cr.Now it is trading at 20 cr market cap(Price 17.5).Div is 5 %.Yield 3 %.

So with good promoters huge valuation mismatch is there.Please look at latest results.On 14.3 cr sales 6.97 cr net profit is announced.Though one need not expect for similar results every quarter(B: Hydel power has strong q2) on proj eps of 7 it is trading at 2*.


(Hitesh Patel) #5

techno electric management seems to be walking the talk. Building up of windmill assets is on its way. Currently the company has around 207 MW of windmill assets operational. Plans are on to increase this by 100-150 MW every year in a gradual manner.

At cmp of around 170 it looks quite attractive. Its a theme based investment. Once the theme of renewable energy catches fancy, this could run real hard.

Currently it is being treated as a power sector ancillary play.

Will put up a detailed update during the weekend.


(Hemant V Bhatia) #6

Please check thepresentation by co on 18th Aug to analysts in mumbai.

http://techno.co.in/Content/InvPresentation/Q1FY13%20Investor%20Presentation%20.pdf

Further they stated that they are looking for PE investor for investment in Simran Wind (

In 2011, Washingtonabased International Finance Corporation (IFC) the

investment arm of the World Bank picked up a 3.38% stake in Simran Wind

Project Private Ltd for $5 million, and also extended another $30 million as

debt. These funds were used in setting up additional wind generating

capacity.)However they said that payment position by TNEB is very bad (9/10 months) & expect that to improve only by end 2013 or mid 2014.

One can also check the brokers reports on companies web site www.techno.co.in


(Hitesh Patel) #7

I am putting up a report with some more updates, effectively a revised updated version of the earlier write up.

TECHNOELECTRIC ENGINEERING LTD.

Cmp 170 (Market cap around 970 crores).

Techno Electric Engg Co is involved in the following business segments.

1. EPC

Turnkey projects ranging form complete power generation plants to system packages of plants tailored to complement larger systems supplied by others.

Electrical systems across Generation, transmission and distribution upto 765 KV.

Tailored power systems for industries such as aluminium, petrochem etc.

Order book of the segment as on March 12 was 900 crores.

2. Renewable energy

operates around 207 MW wind energy assets and plans to expand further. Plans to enter bio mass, solar and hydro energy sectors. Company has plans to reach a capacity of 357 MW by fy 13 and 1250 MW capacity in Wind energy by 2019-20. As per the company announcement on bse recently the companyâs capacity now stands at 207 MW as on March 12. The company intends to increase the capacity by around 150-200 MW annually.

Till now company has invested 655 crores in setting up the renewable energy business. The company allotted 3.88% stake for 22.5 crores to IFC Washington to partially fund the latest 111 MW renewable energy project.

3. Transmission â

Completed a 25 year (extendable by 10 years) concession in consortium with Kalpataru Power for transmission link at Jhajjar Haryana.

Techno will be paid a monthly charge of 4.5 crores by Hariyana Vidyut Prasaran Nigam besides enjoying rebates and incentives.

In addition to this, Techno will do Operations and maintenance of the substations under this project for annual fees of 4.5 crores.

Plans are for the company to add one transmission line to its kitty annually and have 5 projects by FY 2020. It plans to enter new states like Rajasthan, UP, Maharashtra and Tamil Nadu which have shown some interest.

FINANCIALS

EQUITY 11.4 CRORES (FACE VALUE OF EACH SHARE Re 2)

Book value 80

Debt equity as on March 12 was 0.62.

Debt as on March 12 is at 416 crores (long term) and 154 crores (short term). Total debt is 570 crores. Current investments are at 15 crores and cash and equivalents are at 17 crores. Net debt comes to around 540 crores.

LAST FEW YEARS RESULTS

CONSOLIDATED RESULTS FOR LAST FEW YEARS.

YEAR

08

09

10

11

12

Q1fy13

Revenue

430

486

702

716

820

188

Ebidta

50

54

142

163

218

78

Int

0.3

0.6

21

23.8

28.3

12.6

Pbt

61.2

84.4

141.4

138

145

51

Pat

49

63

118

113

121

41.5

LT debt

0.1

42

246

52

416

.

PROMOTER HOLDING 55%

POSITIVES

Strong growth in the past and expected in future

Good capital utilisation reflecting the managementâs vision

With a lot of emphasis on the power generation by govt, co will not be short of orders

With scarcity in the availability of coal and higher crude prices, alternative energy sources like wind energy might assume more importance.

Profits from the wind power segment are likely to accelerate growth in profits. Gross profit from energy segment for quarter ended June 12 was 40 crores as compared to 18 crores for June 11. For full year ended fy 12, gross profit from the segment was 56 crores. First two quarters are usually the best for wind energy wherein around 75% revenues and profits are recorded.

NEGATIVES:

While the company has been showing steady growth in the EPC business the growth in the wind energy business needs to be monitored.

Debt has been gradually increasing because of investment into wind power assets.

Looking at the fundamentals, the stock could be a good investment opportunity on declines.

INVESTMENT THEME

The broad investment theme in Techno Electric Co is aimed at investing in a company that is present in the EPC segment, and is establishing itself and planning to expand into a sunrise sector of wind energy.

Going forward renewable energy and key companies in the sector can easily catch market fancy and if that happens this company could provide outsized returns.

Along with EPC segment, the transmission project is likely to provide sustained cash flow to the company and the company is using these cash flows to augment its wind and other alternative energy assets which are likely to generate good returns in the future.

Based on current market price of 170 levels, which is close to the lows of the stock price in quite some time, downside risk apparently looks low.


(aware) #8

Hiteshji,

khichdi pakne mein yahan kitna time lag sakta hai?

I know it is a difficult question


(Hitesh Patel) #9

difficult to answer. But downsides from current levels seem low as stock is available at lower end of valuations inspite of better prospects going forward.


#10

Latest Concall details https://docs.google.com/file/d/0B8LhMBYQZW63VEVVQ3hQZ2lGdEU/edit?pli=1

Regards, Vishal Kejriwal


(Ayush Mittal) #11

Hi Hitesh bhai,

This does look interesting. I was looking at the presentation and it seems the co is projecting a 100% growth for one of their major project. If so, the stock should do very well.

It is usually rewarding to back a good co in a beaten down sector.

Lets try digging more into it.

Ayush


(Hitesh Patel) #12

ayush,

I have dug a lot into the stock since a long time and post q1 fy 13 results my bullishness is re inforced.

And when one compares this one to other failures in the same space like orient green power and such other names, the respect for the management goes up a notch higher.

Just to list some postives and negatives:

Postives:

1). Impeccable track record of the management over the years. They have been one of the best companies in the EPC space in building power substations for powergrid and other power related work. Most of the times they complete their work before deadline.

2). Seeing intense competition and dimmer prospects of EPC space management decided to venture into somewhat related space of distribution through kt jhajjhar transco. This is a venture which as i mentioned before provides the company with around 4.5 crores per month income and yearly maintenance contract of around 5 crores.

3). Wind energy is being scaled up in a sure footed manner and more importantly, a profitable manner. What i expect going forward is higher EBIDTA contribution from wind energy to the overall figures.

4). IFC Washington taking a stake in their power subsidiary should be viewed as a positive.

5). Management is very communicative about its intent, future course and projections. One look at the presentations on the company website should be enough to reinforce this point.

Negatives:

1). Increasing renewable energy portfolio would increase the debt. Although this has been handled in a gradual calibrated manner till now, one has to be careful that too much debt does not derail the plans of the company.

2). Unreliability of SEB in sticking to govt guidelines might hamper projections made by the company.

3). EPC segment is suffering from lacklustre show. In my view management is consciously not going after orders with low margins and revenue visibility and this should be taken as a positive.

4). Whole sector is being viewed with a jaundiced eye by the markets and hence suffers from a lack of investor fancy. (that too should be viewed as a postive by those buying into stock at attractive prices precisely bcos of poor sectoral fancy)

would await more views from you ayush.

regards

hitesh.


(Excel Monkey) #13

Looks very interesting

Also with the SEB debt recast you might see a new round of investment by SEBs in distribution and transmission infrastructure

As of now SEBs are not investing even a bare minimum in infrastructure

What kind of PPA they have? What kind of IRR would they generate from wind assets?


(Vivek Gautam) #14

Hats off to Hitesh Bhai for discovering the stock from an unfancied sector. The main differentiator is the first generation entrepreneur IIM educated PP Gupta with proverbial FIB. This guy had guts to resign from cushy jobs in BHEL n Grindlays in 70s to plunge into entrepreneurism.

Valuations are reasonable, debt is moderate, wind energy sector is promising.

Negatives are stiff competition in electric sector from Korean, Chinese n Old Indian cos like Alston, Siemens etc .But renewable energy segment n transmission segment in PPP mode are promising.

This co shud be the first to relate when fancy returns for the sector.


(Hitesh Patel) #15

You can look up in the q1 fy 13 investor udpate – renewable energy section.

detailed explanation is given there.


(Rudra Chowdhury) #16

Had in the past invested in Kalpataru which is another bigger player in EPC. The concern on this company seems to be the drag on their core EPC business.

Wind energy sure looks promising with tax credits and stuff, but without the core business turning around the company may not re-rate all of a sudden in a hurry.

Banks, engineering and construction firms seem to be more suited if one wants to participate in the rate-sensitives rally.


(Excel Monkey) #17

Thanks

PPA details were there in the presentation.

Elara cap report says they target for an equity IRR of 16-17% for their wind assets


(Excel Monkey) #18

Market seems to be ignoring the positive effect of SEB debt recast on contractors

Though market seems to be discounting the positive effect on the PSU banks


(Excel Monkey) #19

Going through the last conf call of techno

One risk worth highlighting is increasing receivables as TNEB has not been paying on time. Something like 50 crore outstanding

TNEB is a problem for all IPPs

They have not paid neyveli lignite something like 3000 crore

Hopefully the situation should improve after the SEB debt restructuring


(Vivek Gautam) #20

What about the evacuation problem faced by co in Tamilnadu due to transmission constraint which is a major problem