Thanks Atul for your timely updates.
Technofab Concall Transcript - sent in by another goodSamaritan, who maintained copious notes!
Technofab Engineering
Analyst meet
31-May-2012
Order Book:
~950 cr; just over a third is from overseas, balance is domestic.
Biggest segment is Thermal Power -38.6%, and Water sector- 28.4%, ???-16%, Oil & Gas 12.2%, Nuclear Power & Electrical T&D - 2 odd % each
Bangladesh Project: any revenues booked in Q4?
No, We expect to start advances in a month or so and start rolling on that; Project off take has been a little slow. Its a privately funded project; funding is alittle slow, which is a concern now world over. Land is already acquired, we have already checked the land, the funding should get sorted out in a couple of weeks
FY12 Revenues -Overseas vs Domestic:
34% Overseas; balance domestic
Outlook and Fy13 Guidance:
We are concerned. Jobs are certainly taking longer to award, there are fewer opportunities due to land acquiaition problems, coal linkages, or funding problems.We are fortunate that we have a decent order backlog and having our tentacles in overseas markets - which are insulators. Indian domestic market there is definitely aconcern - in terms of closing orders or award jobs. And they are taking longer because of non-availability of funds.Land acquisition was a problem earlier, now themain issue is now funding in India. We are also seeing ncreased competion in overseas markets - especially Chinese players.
We will see a growth, but the growth will slow down, we should do upwards of 450 Cr. We basically plan to sustain Margins. We have always maintained there is no pointadding turnover without adequate margins. If we accept business with lower margins, we might have been in a position to log better turnover.
Order intake this year:
Start has been slow. 1 order booked at 15 Crs. And we are L1 at some 210 crores (2 jobs in India and 2 overseas). Last yr 750 cr fresh orders; This year target is 1200Cr
Debtors going up:
Thatās becasue of regrouping. In the past we used to show Retention Money separately. It is now being clubbed with Debtors - is of the orderof 50-55 Crs. Debtor days has actually come down.
Foreign Project Risks:
We have been in foreign projects for 20 odd years; dont think our risks are changing that way. The overseas share is still 30-40%.Main base is still India and we plan to focus here. We bid very selectively in overseas countries and look for countries that are politically stable.Most of these projects are Funded projects. World Bank, or ADB funded or ā¦ So we are pretty insulated in terms of risks. We dont foresee major risks in overseasprojects at all. Certainly not more than what we are used to in India.
Any Risks on Receivables from delayed payments?
Risk of delayed payments is almost negligible infunded projects. Work getting delayed because of political interference or project issues - thatās a different matter; and so far we have never faced such issues.
Dividend Payout low:
Deliberately being conservative, keeping in mind the current market scenario. Going forward, there is likely to be a liquidity crunch.We want to maintain a Long term approach, we want to be cautious. We want to make sure cash is on hand to achieve our numbers.Very honestly, we should be cautious, weneed to conserve, we donāt know ā¦there areuncertaintiesin the market, We look at sustainability and that every year we should be able to increase our dividends. And that increased dividend should be sustainable. Next year we should be able to increase the dividend. Thatās really our dividend philosophy.
African countries- Political Dilemma:
Donāt know which countries you are talking of -political dilemma . We are not working in those countries where Polictical situation is - I would say Sudan is acountry, but we are not working there. Also we should not be segregating Africa out. We not only work in Africa, we work in Fiji, in Bangladesh, some other countriesalso. As we said we go to countries where there is reasonable amount of political and economic stability and we search for funded projects. So we are comfortableworking there. Our focus is India, not International only. We hope tomaintain50-60% of business still coming from India.
Now Whether to work in India or abroad:
Froma political perspective, I think the politics of the country has a more negative impact in India than in these African countries!
Order Book: Domestic & Overseas and Segments
It is 40:60. Water, Power and Oil & Gas are main sectors. We donāt set sector targets or Country tragets. We set a total Targets which fall in any of these sectorsor in any of the countries that we operate in.
Employee Benefits expenses: gone up 41% on an annual basis?
How do we pay our Engineers? At IPO time we were asked this question, and we always said we pay them poorly. We have tried to improve upon that. We have tried toincrease salaries to be more contemporary in term of competition - so that we do not lose, and can attract manpower. Also we had to raise the total manpower.So these 2 factors are the reason for the rise.
Ongoing slow-moving projects: Lanco, Reliance Power at Sasan, India Bull projects - any signs of moving of these projects?
Projects are moving along. We are facing Cash flow issues in Indian Projects ā¦which all of these are part ofā¦no pointed issues or a problem that we can bring upthere. We should be able to close them soon enough.
So would you say that these projects which were slow earlier - have they started moving now?
I would say they aremoving steadily ā¦gradually and steadily they are moving forward!
Overseas JV/Subsidiary plans?
We have offices abroad - primarily in Africa. They are more for facilitating project execution. We wish to control these from India and dont plan to set up anysubsidiaries at the moment. We are certainly forming associations with foreign partners - more in the water treatment side- which help us qualify for jobs in Indiaand overseas also. We entered into MOUs with couple of players in European countries - to target specific projects - for DM demineralisation or desalinisation projectsor sewage treatment.
Sharp rise in Other Income in FY12?
Substantial part of Other Income is actually Operating Income. The reason it is so, is that When we get our overseas income ā¦we book it and convert to rupees at acertain fixed rateā¦and in recent months the rate has gone higher than that fixed rate. So it is just for our - I mean it has no other implications other than ā¦ouraccounting help. So when it goes higher, than we book it into our Other Income. Second is well, we do have returns form our Surplus money that we have deployed.
Finance Costs - includes any Forex gain/loss?
No, in our business we have considerable finance expenditure, project related expenditure, on account of non-fund borrowing - like Bank Guaranatees and so on.And of course we do have some Overdraft Limits - on which we pay interest, but that is netted off against the Interest received from securities, FDs that we have.
Any Hedging Mechanism:?
None at all. We manage things on our own, but with feet and ears to the ground.
Wow! Thanks Atul and this Good Samaritan.
This almost verbatim transcript looks to me - the tenor of the answers, tells a lot about the quality of the Management! Think they are very grounded folksā¦know what they are doing!
Donald - anyt chances of a Management Q&A soon?Also ValuePickr seems to be attracting the right sort of contributing members. Please keep up the good work!
Yes, the Concall sends the right signals about the Managementās grounded-ness. They wouldnāt like to overproject. Appreciate the caution on guidance. I have a feeling the Management will deliver more!
Management Q&A has to be done - Technofab already features in the Short-Term Portfolio, so thats a must. We should get this done in July 2nd half, when we visit a few companies in Delhi.
Guys - let start shooting in 2nd level questions. I guess most of our top-level questions were covered in the Concallā¦ I would like to probe a little deeper on some aspects- especially orderbook executionā¦anything else that ascertains better visibility!
Somehow my experience with crisil reports has not been good.they give overly optimistic projections.i burnt my fingers in Modison,dcb,infinite computers all poor performers after reco from crisil
I agree with Vivek here. CRISIL misses out on really important details in their reports. Case in point their recent report on Everest Kanto Cylinder. Boy, were they optimistic! Best part? They didnāt even mention Everest Kanto Cylinder had FCCBs. Not one mention of FCCBs in the whole report.
I would stick to Valuepickrās reports, findings and analysis rather than depending/believing CRISIL reports.
I agree sometimes these reports miss aspects that turn out to have a significant bearing on the eventual stock performance. I too burnt my fingers in Laxmi Energy & Foodsā¦the first CRISIL report I read ā¦and was blinded! Since then I resolved never to take any Report as the last word - but to take that forward with our own investigations/digging.
BUT, we welcome getting reports from all sources, cos we get to know more of the company we are tracking. I have seen my understanding of a business actually increases, once I have consulted 5-6 different reports on the business. And almost always when reports exists in a business, it shortens our investigation time drastically on getting to the bare bones:) So we are free to concentrate more on questioning the facts, and dig up more!
What I liked about the CRISIL report on Technofab is the quite comprehensive peer comparisons done. I am thankful for that - for shortening my compilation time.
Our approach should be to always be OPEN - stay away from biases as far as possible - you never know who will surprise you with what goldmine of info. This approach has worked well for us when we interact with Institituitions, Analysts, or individual investors!
Hi Guys,
Meeting with Technofab Engineering Senior Management coming up in 2 weeks.
Please fire away your questions and help us collate a good set of questions - and make the most of the opportunity.
Rgds
Donald
Hi Guys,
Technofab came June 12 result but not sure it isgood or badā¦
http://www.bseindia.com/xml-data/corpfiling/AttachHis/Technofab_Engineering_Ltd1_010812_Rst.pdf
changes in inventory is -12.93, is this good or bad not sure? is it red flag as i donāt see negative inventory in earlier result?
raw material cost has been increased more than revenue (revenue increased around 20 cr but consumed material increased around 25crā¦), does it also raises red flag?
Thanks in adavance for help.
Regards,
Milind
Hi Donald,
Could you please provide some information about conference call script for q1 result? I feel it happened on 3rd Aug.
Regards,
Milind
crisil report on Technofab
Hi Guys,
Please find the con call details āhttp://www.aceanalyser.com/Conference%20Call/220028_20120803.pdfā hope this will help us more to build the insight of the company.
Regards, Vishal
Thanks Vishal for the concall update.
Technofab is a solid company. FY13 looks business as usual. The real RISK is about a project going wrong, funds getting stuck, and the effect it can have on a company of its size.
So allocations can not be big on this company - for that matter - in any EPC company of small to medium size.
It looks like a no-brainer for small allocations, however. The update on the Mangement Q&A is pending, but I am occupied in other things. Will do in next -2/3 weeks.
-Donald
Hi Donald,
I am not able to understand howbiggies like Reliance and lanco are not able to pay some Cr to them.
I just about managed to hear the concall and am myself surprised at the non-payment by Reliance & Lancoā¦
If you look at the topline growth and operating level results are still decent (definitely above par as compared to larger peers, but we need to appreciate the small size).
The nt debt has come on books due to overseas project operations. As the co. has stated they are L1 in several interesting projects.
Last yrs growth may not be achievable, but the co is still tgting >20% at both topline and net levels.
Moreover, one dampener in the near term is probably that one of the larger shareholders (Birla Sunlife) have been paring their holdings (as indicated by mgt in the interaction). Absorbing large-offloading in not-so-liquid scrips like this one may be a near-term dampener, but the story looks fairly attractive at current levels.
Regular insider buying is still happening (as per the insider trade disclosure on exchange websites).
As Donald very rightly mentioned, he biggest risk undoubtedly is on the execution front. But downside seems quite limited, but for reasons out of control for the company/sector.
Any on received dividend declared by company (2 Rs)in their demat account? or any idea when it would be credited to account?
Regards,
Milind
How about PETRON eng in the same space. Few details here
MNC company, Promoter holding 70%, good roce of around 24, 5 yr avg roce of 25, D/E of 0.6
debt = 164 crores,mcap = 122 cr
mgmt recently acquired shares above 350 via open offer
hI,
@Rajesh- no idea about petron enggā¦ Do share more abt d co if it looks interestingā¦
@Milind- Dividend credited todayā¦
**I prefer petron to technofab , my observation and analysis
**
Petron vs technofab ( proportion with respect to total sales)
- Management - MNC vs Indian
- Raw materials - 37% vs 70%
- Employee cost - 15% vs 6%
- Selling and Adm expense - 11% vs 1.7%
- Manufacturing exp - 18% vs 6%
- Depreciation - 2.3 vs 0,6
- interest - 2vs 2
General comparison
- Management -> Advantage to Petron being mnc and turned around company in last 3 years
- Years of operation -> Advantage Petron as it is from 1976
- ROE and ROCE -> Equal weight, but tilting slightly towards technofab
- Size -> Petron is twice the size of technofab,
- PAT -> Adv Technofab same PAT for half the sales
- Area of operation -> Oil&Gas and Power is common for both companies.
- Allied Areas -> Technofab is also in water whereas petron is also in refinery, cement,fertilisers etc.
- Type of operation -> Adv Petron seems to be highend ( Guess based on the number of employees ( 1200) and the total cost for them)
- Promoter holding -> Adv petron (70% vs 40%). Promoter got it at around 350.
- Debt -> adv technofab ( petron has around 174 crores of debt. D?E of 0.6)
- Market cap -> Adv petron. ( 122 crore for petron compared to 138 crore for technofab inspite of its size)
- Geography -> Adv petron as mnc is based on britain ,but concentrates mainly in kazhakisthan