Sunil Hitech Engineers

Stock Opportunities
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Sunil Hitech Engineers ( SHEL) is a Maharashtra based company .Started by Mr Ratnakar Gutte ,a high school dropout with just Rs 2,000 as capital ,Sunil Hitech now turned as a Rs.1500 Cr turnover company . Now company is professionally managed with the help of his two sons -one a mechanical engineer and the other an MBA.

SHEL specializing in fabrication, erection and commissioning ofpower plants. In addition to power plants ,company executingLump sum turnkey (LSTK) contracts of Transmission & distribution projects, Steel Plants, Sugar Industries, Process & Piping Industries, irrigation projects…etc .Company is one of the few qualified contractors for BOP worksup to 660 MW .Comanyâs marquee clients includes NTPC,BHEL,Alstom Energy Corporation,L &T,JSW Steel,JSW Energy ,BALCO …etc and various state electricity boards.At the end of FY 2013 SHELâs order book position was Rs.2300 Cr .

Furthermore ,Company has entered into the construction & development of luxury homes/flats equipped with all modern amenities and facilities namely ‘‘Water Green Project’’ at Nagpur, Maharashtra and’‘Green Acres Project’’ at GOA. Also due to rapid growth and upcoming opportunities in the construction & development business of roads / highways/bridges/flyover, Company is eyeing to explore opportunities in this sector.

In FY 2013–14 ,on a consolidated basis ,company reported a top line of rs.1598 Cr , a net profit of Rs.30 Cr and an EPS of Rs.18 . During the latest two years promoters hiked their stake from 49 % to 58 % by subscribing shares on preferential basis .In addition to this ,they also subscribed warrants which will be converted into equity shares within 18 months. On full conversion of these warrants promoters stake will again rise to 66 % .Pumping of this additional funds by promoters will help the company to reduce its dependency on debt and some comfort on working capital side.

Last 5 years performance : Itssales have been growing at 19% per annum over the last 5 years. While the Net profits had recorded marginal growth , it has more to do with the overall sectoral performance.

**Current Year Performance:**Current Year Performance has been extremely strong . During the first quarter , it has growth its sales by 28% and Net Profits by 50%. EBIT% had grown by 32% and EPS by 33%.

Cash Flows : What has interested me is that the companyâs strong Cash Flows. The company has generated positive cash flow in 4 out of 5 years. Its enterprise value is only 5.4 times the Free Cash Flow during the year 2013-14.

Reasons for Recommendation : Regular increase in Promoter Stakes year after year, Strong Cash Flows, Low Enterprise Value to Free Cash Flows(5.4 times 2013-14 FCF ), 4 fold improvement in Cash Flows from operating Activities during the last one year and 50% growth in PAT during 1st Quarter.

Disclosure : Not yet invested but will be investing.

Concern Areas : While going through 2013-14 Annual Report , I saw the following Auditors Queries and Management Replies . The company hasn’t added subsidiaries Accounts Statements to AR since they were not yet prepared. I do not think this is the right practise though they account for only 10% of sale and 15% of Net Profits… I am copying them verbatim so that we can get group’s interpretation of these Queries.

Auditors Query:-

In case of PBSPL-SHEL-JV, one of the joint venture of the Company, the audited financial statements are not available. The proportionate share of each of the assets, liabilities, income or expenses of the said Joint Venture has not been incorporated in the consolidated financial statements.

Management Reply:-

Sunil Hitech Engineers Limited (the Parent Company) has entered into a Joint Venture with Phenix Building Solutions Private Limited named as PBSPL-SHEL-JV, a jointly controlled entity where in the Parent company holds 49% interest. The accounts of the said JV are under preparation and therefore, the proportionate share of each of assets, liabilities, income and expenses of the said JV has not been

incorporated in the Consolidated Financial Statements.

Auditors Query:-

In case of MSMC Adkoli Natural Resources Limited, a joint venture of Sunil Hitech Energy Private Limited, one of the subsidiaries of the Company, the audited financial statements are not available. The

proportionate share of each of the assets, liabilities, income or expenses of the said Joint Venture has not been incorporated in the consolidated financial statements.

Management Reply:-

MSMC Adkoli Natural Resources Limited is a JV company of Sunil Hitech Energy Private Limited, one of the subsidiary of the parent company (As per Accounting Standard -21 issued by the Institute of Chartered Accountants of India, New Delhi) and Maharashtra State Mining Corporation Limited. The accounts of the said JV Company are under preparation and therefore, the proportionate share of each of assets, liabilities, income and expenses of the said JV has not been incorporated in the Consolidated Financial Statements.

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**Debt : **Generally I am wary of investing in companies with debt on their books. Sunil Hitech Engineers has a debt of 454 cr against a Net Worth of Rs347.00 cr converting into a Debt Equity Ratio of 1.3:1 and about 3.4 times the FY14 EBIT of the company. I have gone through Balance Sheets of other well performing Engineering Companies such as Suprajit Engineering, Technocraft Industries , KEC International and J Kumar Infra and all of them have Debt higher than one years EBIT and Sunil Hitech Engineers would fall in the middle of this list.

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http://www.hindustantimes.com/india-news/mumbai/former--cm-manipulated-coal-block-tender-process-somaiya/article1-935739.aspx

if they are doing maintenance/EPC, why did they get a coal block allocated. and no work on it for years ?

Is it a front for a politician to park other assets ?

got the coal block through a JV and then sold it promptly and the financials of the JV are not into the company.

seems like 2G modus operandi/vadra redux - massage the local government, get a coal bock cheap and transfer it to a big fish for a good price -

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Most importantly, there is no acknowledgement in earlier years AR that such a JV was created for the purpose of getting and no mention of why they intended to do it.

And if the company sold its 50% stake to jaypee group - so where’s the cash that it received in FY 12 ? it sold a part of its 50% stake ?

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Dear Varadha,

I had gone through the Annual Reports and News Items on both company website as well as Money Control. There were no references to these transactions on either of them.

These transactions could have been done by Sunil Hitech Engg and Manufacturing which is a subsidiary of Sunil Hitech Engineers. In that cdase, it is not mandatory to mention the same in their AR.

With respect to the transaction per se, as per ther news item they had invested Rs55.0 cr and sold 49% stake at Rs75.00 cr which was revenue accretive .

Please let me know if there are any other red flags with respect to this company

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“The Natural Resources Limited was formed in November 2009 withSunil Hitechwhich is owned by Ratnakar Gutte, the husband of NCP leader Sudamati from Parli in Beed district in Marathwada”

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[

Sudhamati Gutte being an NCP leader is a news.

However there was a special Resolution passed in 2012 AGM with respect to Acquiring Coal Blocks :

Cast in favour Cast Against votes not Reported

6572445 10976 665

Notice Particulars of the the Resolution participated

Resolution

2). b. Special Resolution Passed asClause No. 41 to acquire and develop

Coal Block, to purchase, sell and distribute coal either in India or abroad.

http://timesofindia.indiatimes.com/city/nagpur/State-corporation-made-a-pile-auctioning-coal-blocks/articleshow/16303853.cms with](http://timesofindia.indiatimes.com/city/nagpur/State-corporation-made-a-pile-auctioning-coal-blocks/articleshow/16303853.cms)Sunil Hitech Link: http://economictimes.indiatimes.com/sunil-hitech-engineers-ltd/stocks/companyid-16042.cms which

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Ratnakar gutte too… BJP alliance.

Lost elections

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The promoter campaigned as independent from Gangakhed assembly constituency, lost elections, but was arrested for alleged distribution of money.

http://www.mumbaimirror.com/mumbai/crime/MLA-heading-bank-held-for-distributing-cash-to-voters/articleshow/44465002.cms

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Hmm… what did we expect ? the company refuses to divulge details of the profit they made by buying and selling coal mining rights. Then the promoter stands as an independent and distributes cash to buy votes -

“Cash for loans” is an old scheme that has led to ruin of a lot of banks - primarily co-operative and PSU’s.

I would pass this company, given all these clouds. I am sure in this market, we could see this giving 50% in the next 3 weeks, but I would rather pass that opportunity.

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The promoters of the company had declared concealed assets of nearly Rs.100 crores during an IT raid in 2010.The statutory auditors refused reappointment in this year’s AGM.The main promoter is from Beed and belongs to NCP. A share of this co should be treated as a lottery ticket, and one should expect a risk reward ratio similar to one.

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The stock has moved miles in last one year or so and promoters have tried to pose good picture for retail investors by sharing dividends etc… The company has significantly improved its top line & bottom line both. But still questions are being asked regarding promoters political involvement and its impact on long term future. Recent news from unconfirmed sources is that Income Tax authorities have raided their office in certain old tax disputes on 15-16 Dec 2015. Long term investors may need to evaluate its impact in upcoming quarterly results as if management has done some mischievous acts in the past then they may reserve some funds to overcome the litigation. I shall welcome views of trusted old knowledgeable investors on this.

http://www.nagpurtoday.in/what-triggered-it-raid-on-sunil-hitechs-14-premises-action-likely-to-continue-today/12171046

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Sunil Hitech came with strong set of numbers. Hopefully they will have 20% increase in EPS for current FY. I feel that when broader markets turn positive after current turmoil, we will again see Sunil above 300 in next few months itself. Long term story seems intact despite Tax raids need still clear explanation from management. We have seen repetition of raids in less than 5-6 years itself

NSE Announcement

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I am observing a unique event in Sunil Hitech, normally sale of shares by promoters is considered as one of the major negatives for the scrip, while its turning to be just reverse for this. In last 8-10 days itself, Mr RATNAKAR MANIKRAO GUTTE has sold almost 87% of his holdings and now he has only 293,398 shares, which was 2202,500 during last SHP filling by company.

Pasted image771×394 35.8 KB

Now the point to be noted is that share prices have appreciated 70% in last one month. We still need to watch the unfolding events which may give a new dimension to our analysis. I don’t have any clue / information, if Mr Gutte is going to utilise the generated fund for organisation or he has different plans for that. We know that they got a big project of approx 415 Cr for construction in bihar housing project for 12 towers recently and if the fund is going to be utilised for initial mobilisation of the project, then obviously, we may see quick inflow of money moving the top-line aggressively. Already management gave a guideline of 15-18% top-line growth in near future. The company is expecting almost Rs 2,500 crore order book in current financial year (FY17)

I expect them to clock TO of around 2150 Cr in current FY, as they are expecting more projects from housing for all projects in various states. I was confident of bright future for them but this promoter selling has created a question mark for time being.

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Requesting you to please reassess ur conviction.I have ground report that all the recent power projects they bagged like NTPC Tandwa, NTPC Kudgi are much below estimated price & surely will incur huge losses.Even NTPC are mulling to disqualify Sunil Hitech from quoting for any future projects as work not progressing because of payment to suppliers.
Only reason i can find to quote much below estimated price in all tender is to just show strong orderbook & not bothering about bottomline.

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Company has released pledge on shares

http://www.bseindia.com/xml-data/corpfiling/AttachHis/089CA62B_D0A9_464F_8EE4_AF3CA05BE809_110506.pdf

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Hello @seshukumar, Are you still following the company? Why has it dropped so much - due to pledging? Any views for long term prospects will be useful.

Thanks

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Stay away from the company. They clearly have liquidity issues.

https://www.tribuneindia.com/news/bathinda/city-businessman-duped-of-rs-82-lakh/621588.html

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Results out. loss QoQ has come down. However surprised that the revenue has fallen to 1/3rd of March quarter.
Is this because of significant decline in project execution? I am wondering is it even worth holding this company.
The only silver lining in the cloud is that the order book looks good.

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The following statement means a lot

image

There have been serious concerns about execution of projects in hand, which raises serious doubt on order book as well. As topline suggests that execution has really slowed down due to numerous reasons primarily crunch in working capital.