Rs.355 & engineering, procurement & construction (EPC) contracts. Tecpro Sector Stock Details

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2 itiatincovere Initiating Coverage Recommendation BUY Snap shot Incorporated in 1990, (Tecpro) undertakes CMP (30/06/2011) Rs.251 turnkey projects in material handling, ash handling, balance of plant (BoP) Target Rs.355 & engineering, procurement & construction (EPC) contracts. Tecpro Sector Stock Details Engineering started focus on turnkey BoP contracts by leveraging its expertise from coal handling and ash handling business. and bagged its first BOP order from state of chattishgarh in FY10. Currently it is executing three BOP BSE Code contracts worth of Rs crs. Company has entered into the technical NSE Code TECPRO collaboration & license agreement with several international companies, Bloomberg Code Market Cap (Rs. cr) Free Float (%) TPRO IN % which strengthens its technical credentials and also enables it to service the clients with advance technology. Investment Rationale 52- wk HI/Lo 454/225 Huge Opportunity across the Industry: According to CRISIL, Investment worth of Rs. 9.5 trillion is expected in core sector like Avg. volume (monthly) Steel, power, port etc. during MHE ( Material Face Value ( Rs) 10.0 Handling Equipment ) segment will account for Rs. 468 billion, Dividend (FY11) 30% with majority of investment coming from power sector. Shares o/s (Nos. in cr) 5.04 Healthy order book provides revenue visibility. Current Order Relative Performance 1 Mth 3 Mth 6 Mth book of company is around Rs 4371 Crs, which is 2.2xFY11 revenues. It has witness strong order inflow of Rs 4353 crores for Tecpro -18% 0.1% -33.6% FY11 Sensex 1.3% -0.6% -9.1% Transforming into bigger league of BOP: Leveraging on its capabilities of coal handling & ash handling, Techpro has entered into BOP space by bagging its first BOP contract of 1x500 MW power plant, from state of Chhattisgarh amounting to Rs. 930 Crs. Recently it has got two more orders worth Rs Crs from APGENCO for BOP Robust Financials : Over the past few years, the company has grown at a phenomenal pace along with entry into the booming BOP-EPC space. It has performed well even during down turn enviroment. Current order book is Rs Crs, which gives Shareholding Pattern as on 31/03/2011 revenue visibility for next 2-3 years. We believe Tecpro is all set to capture higher market share & is well placed to tap the Promoters Holding 52.60% opportunity especially in BOP segment compare to its peers. FII, Banks & Institutions 42.96% Corporate Bodies 1.32% Public & others 3.13% Sunil Jain, VP Equity Research Sunil.jain@nirmalbang.com We have assigned P/E of 11x on FY12 EPS of Rs and arrive at a target of Rs355, which provides potential upside of 41% from current levels. Year Net Sales Growth EBITDA Margin Adj.PAT Margins Adj.EPS PE P/B FY09A % % % FY10A % % % FY11A % % % FY12E % % %

3 1,00,000 MW of capacity addition is planned over next 5-7 years. Investment Rationale Mammoth Business opportunity According to CRISIL estimates, over the next four years, the total investment by core industries such as coal, steel, power, cement etc, in Material Handling Equipment (MHE) is expected to be around Rs 468 Bn of which large chunk of investments (around Rs 315Bn) is expected to come from power sector. As per CEA ( Central Electricity Authority ), around 76.5 GW of thermal power generation capacity is expected to be added in 12th Five year plan, an average of 15.3 GW per year. BoP (Balance of Plant) portion accounts for around 40% of total project cost. An average investment of Rs 4 to 4.5 crores is required for setting up 1MW, which translates an opportunity of around Rs crs from BoP space in 12 th Five year plan. Tecpro is market leader in coal handling & ash Handling and enjoys 19% & 15% market share respectively. According to CEA, in the 11 th plan Tecpro got highest number of Coal handling orders. CEA estimates the required number of BOP Packages for 12 th Five Year Plan BoP Packages 11th FYP 12th FYP Coal handling Plants Ash handling Plants Dimineralised Water Plants Cooling towers Chimneys Fuel Oil systems Pre treatment plant Sources:- (Company Presentation, Nirmal Bang Research) Coal handling & Ash handling plants constitutes about 40% of total BoP component. Tecpro is market leader in both these segment. In 11th Five Year Plan it bagged good portion of total order (11 no. of orders in Coal Handling system and 9 no. of orders in ash handling systems) and enjoyed market share of 19% & 15% in Coal handling & Ash handling systems respectively.

4 Strong Client relationship Tecpro is likely to be key beneficiary from huge capex planned by its major clients. Tecpro has won number of repeated orders for coal handling & ash handling plant from core industries like Power, Steel and Cement. The marquee customers list includes JSPL, Thermax, NTPC, Grasim, ACC, Tata Steel to name a few. All these customers have strong investments in pipeline for next 2-5 years. Esteem List of customers with capex plan No. of Orders Sector Customers to Tecpro as on July 2010 Capex ( Rs. In Crs) Remark Power Jindal Steel & Power Ltd. 50 NA Plans to triple its generation capacity from 2000 MW to 6000 MW in next 3-5 years. Thermax 25 NA NA NTPC ,000 NTPC currently generates over 32,000 MW of electricity per annum, but plans to ramp up capacity to 75,000 MW by For this purpose, it is expected to float a Rs 1,50,000 crore international competitive bidding tender to source the power equipment Lanco 9 24,000 Plans to increase its capacity from current 2082 MW to 9300 MW in next four years. Steel JSW 51 15,000 Plans to double its capacity from 7.8 mn tonnes to 16 million tonnes Tata Steel 35 40,000 Plans to increase its capacity 7 mn tonnes to 16 mn tonnes by 2014 SAIL 30 70,000 India s steel giant SAIL has decided to to invest Rs. 70,000 crs in next 2-3 years to increase in capacity from 13.8 MTPA to MTPA. Cement Grasim Ind ,500 Plans to increase its cement capacity from current51.8 mn tonnes to 61 mn tones in niext 2-4 years. Madras Cements 30 NA ACC 17 NA Sources:- (Company Presentation, Nirmal Bang Research) NA: not avaliable Due to its strong execution capabilities, the company has to established long-term relationships with its clients and receive repeated orders. Armed with engineering prowess and strong skills coupled in addition with diversified knowledge, Techpro system is all set to tap above opportunity.

5 Tecpro s current order book stands at Rs 4371 crores, 2.2x FY11 revenues Robust order book provides strong revenue visibility Over last few years the company has seen significant rise in order intake on account of huge investments in core sector. Order book has grown from mere Rs 973 Crs in FY 08 to Rs 4371 crores, 2.2x of FY1E revenue. Thus robust order book gives strong revenue visibility for the company over the next 2-3 years. The order book comprises of BoP, coal handling (CHP) & ash handling (AHP) projects. BoP orders are generally executable within months whereas CHP & AHP take months to execute. The average ticket size of the order inflow has increased due to foray in to BoP space. Sources:- (Company Presentation, Nirmal Bang Research) Company has seen strong order inflow of Rs 4353 crores in FY11. The noteworthy part is that order worth of Rs 1978 crores, which it has bagged, is in the BoP space. We believe this has strengthened Tecpro s move towards higherin value chain of being BoP player from a material handling and ash handling player. Sources:- (Company Presentation, NirmalBang Research) The order book has increased at a scorching pace at a CAGR of 66% from FY08-FY11. We expect Tecpro to bag Rs. Rs Crs worth of Order inflow in FY12E.

6 Recent orders from APGENCO for BOP work worth Rs Crs, reaffirming credentials as a BOP player Transfering into bigger league of BoP Tecpro system is leveraging in house capabilities of coal handling & ash handling to focus on turnkey BOP contracts in thermal power generation. It forayed into BoP by bagging order from CGSPCL (chattisgarh) in consortium with Vatech Wabag & Gammon in FY10. Furthermore on its individual capacity, it bagged another two orders worth Rs 1978 crores from APGENCO. The competency in bidding for BOP project can be determined from in house manufacturing of different components of BOP package, Tecpro is leader in coal handling and ash handling manufacturing, which comprises about 40% of total BoP cost. It is also exploring for other BoP packages including chimneys, cooling towers, civil work etc, through either organic or inorganic route. BOP:- Project Wise Revenue Project Type Cost ( Rs. In Crs) FY10 FY11E FY12E FY13E Chhatisgarh 1x Rayalaseema Thermal Power plant - Stage IV 1x kakatiya Thermal Power Project- Stage II 1x ( Sources:- Company data, Nirmal Bang Research) We believe BoP business will support Tecpro s growth given the strong opportunity lying ahead in this segment and its strong capability & leadership position in various packages in BOP Projects. Risk Concerns Slowdown in economic growth may impact business Tecpro s growth is directly correlated to investment in core sector of Indian economy. Any slowdown in the Indian economy may hamper the capital expenditure plans of the core sector industries and could adversely affect the company s business. Higher share of BOP Recently Tecpro has got huge order worth of Rs Crs from APGENCO, which constitutes around 43% of total order book. Any delay in execution of orders may hamper the revenue & profitability of the company. Higher dependence on technical collaboration Tecpro has around 12 technical collaboration with MNC s such as FAM, Siebtechnik GmbH, PEYTEC Material Handling GmbH etc. for coal handling & ash handling plants. Tecpro s inability to renew its technical collaborations or fails to enter into similar collaborations with other parties may adversely affect business operations. Volatilty in Commodity Prices &Higher Interest rate 85% of total order book is on fixed prices contract. Although company hedges by booking raw material as soon as it gets the order, which has gone well in past. But any sharp volatility in commodity prices might adversely affect the profitability going forward. Apart from this, interest cost of Tecpro as increased substantially over the period on account rising interest rate. Any further rise in interest rate could affect the growth and profitability.

7 Peer Comparison We are comparing Tecpro with Mcnally Bharat and BGR energy as both of these companies have presence in BOP+EPC & MHE segment. Sales EBIDTA Margin PAT Margin (%) Orders ( FY11) EPS P/E Companies CMP FY11 FY12E FY11 FY12E FY11 FY12E Inflow Backlog FY11 FY12E FY11 FY12E Tecpro % 13.7% 6.90% 5.90% BGR Energy % 11% 6.81% 6.31% Mcnally* % 7.46% 2.52% 3.31% Sources: (* - Bloomberg consensus, Nirmal Bang Research) Competitive Landscape Companies Coal Handling Ash Handling Water Treatment/ Cooling Towers/ chimney BTG BOP EPC BHEL L&T BGR Thermax Tecpro Systems Indure Mcnally Bharat Tata Projects Sunil Hitech Elecon Engg TRF ( Sources:- Company data, Nirmal Bang Research) Tecpro is well positioned vis-a vis competitors with comprehensive range of services in Material Handling as well as BOP/EPC

8 Outlook & valuation Tecpro System, with its strong presence in bulk handling material, is one of the major beneficiaries of strong investment in the core sector of power, steel, port etc. As investments activities are increasing, we expect companies like Tecpro to benefit due to rise in requirements for material handling systems across various industries. Currently, it provides coal and ash handling solutions and outsources the remaining portion of the BoP package from other vendors. The long-term strategy would be to broaden its capability through inorganic & organic growth and execute associated BoP packages, which would enable the company to independently place bids for BOP projects. Over the past few years, the company has grown at a phenomenal pace along with entry into the booming BOP-EPC space. As and when Tecpro begins to execute more large size BoP projects, going forward, we believe it will be able to command premium valuations. The successful execution of few BoP projects over the next couple of years may also result in Tecpro exploring the feasibility of taking up complete EPC for power plants (ie BTG + BoP), which would place it in league with companies like BGR Energy. At CMP of 251, stock is trading at 7.8x FY12E earnings of Rs We have assign P/E of 11x on FY12E EPS and arrives at an target of Rs.355, which provides an upside of 41% from current levels. We recommend BUY rating on the stock

9 Business & Background About the Company Tecpro is engaged in providing turnkey solutions in material handling, ash handling, balance of plant ( BoP ) and engineering, procurement and construction ( EPC ) contracts. It designs, engineers, manufactures, commissions & services large range of systems and equipments for core industries like Steel, Power, Cement & others. In 2001, it started its operations in material handling business, later on by acquiring Tecpro Ashtech Limited (Formerly known as Mahindra Ashtech Ltd) it ventured into ash handling business. The acquired company was engaged in the business of Ash Handling for over 40 years. Tecpro has started focus on turnkey BoP contracts by leveraging its expertise from coal handling and ash handling business. It has entered into EPC contracts for thermal power plant, where it manages the erection & commissioning of the boiler, turbine & generators (BTG-Out sourced) packages along with undertaking the engineering, design, supply and commissioning of other equipment and services in an EPC contract. It has technical collaborations for both material handling & ash handling with various companies which strengthens technical capabilities and provides access to advanced technologies. The company has four manufacturing facilities with three facilities located at Bhiwadi in Rajasthan and one in Bawal, Harayana. Business Overview ( Sources:- Company data, Nirmal Bang Research) Tecpro is an established player in bulk material handling solutions in India. It has bagged large share of coal handling (19% of 11 th plan orders) & ash handling (15% of 11 th plan orders) systems orders which were placed in XIth Five Year Plan till August It has entered in Balance of Plant (BoP) and EPC business which is logical extension towards becoming a full fledge BoP player.

10 Material Handling Equipments: Tecpro manufacturs wide range of material handling solutions. It also undertakes turnkey material handling contracts and provides comprehensive solutions in power, cement, steel and other infrastructure related companies. Additionally it also sells MHE solutions to other turnkey companies. It has executed more than 694 material handling projects on turnkey basis for companies comprising of many large and esteemed players in the infrastructure sector. Technical Collaboration in Material Handling Solutions Material handling solutions Siebtechnik GmbH Maschinenfabrik Liezen Und Giesserei GmbH^ PEYTEC Material Handling GmbH Hein, Lehmann, Trenn-und Fordertechnik GmbH MVW Lechtenberg rojektentwicklungs und Beteiligungsgesellschaft GmbH License for manufacturing, using, selling and exploiting certain products of Siebtechnik including the complete range of vibrating screens. License for sale and manufacturing of various types of crushers including jaw crusher, impact crusher, hammer mill, roller crusher, compound crusher and mobile crushing Plant License for manufacturing Gladiator flip-flow screening machines and all other conventional screens. License for manufacturing Liwell flip-flow screens. Cooperation agreement for the development of secondary fuel production and biomass handling projects in India. Won Duck Industrial Machinery Company Limited FAM Magdeburger Forderanlageund Baumaschinen GmbH Krusnohorske Strojirny Komorany a.s Pneuplan Oly- Finland License for the sale of cone crushers and manufacture of single toggle jaw crushers. License to sell, design, engineer, manufacture, transport, erect, commission and service certain crushers, roller screens and grinding. License agreement for sale and manufacturing of various types of stacker, reclaimers, paddle feeders and twin rotor sizers. Conveying System (Sources:- Company data, Nirmal Bang Research)

11 Ash handling solutions: Tecpro forayed into ash handling business with the merger of Tecpro Ashtech Ltd (TAL) in Tecpro. TAL had been engaged in the business of ash handling systems for more than 40 years and has executed several turnkey contracts for thermal power plants. Ash conveying in the power, cement or steel plants is extremely critical considering the environmental impact of the ash spillage, storage and disposal. The ash handling system utilizes different technologies including pneumatic conveying, slurry and pumping of ash in liquid state or solid conveying through conveyors. In ash handling business it has three license agreements with international companies. Technical Collaboration in Ash Handling Solutions Ash handling solutions GEA EGI Contracting/Engineering Company Limited Promotion of the high concentration slurry disposal system where bottom ash and fly ash are to be disposed together. Xiamen Longking Bulk Materials Science and Engineering Co Ltd. Collaboration for dry bottom ash handling system, pneumatic conveying fly ash handling system and coal mill rejects handling system. Greenbank Terotech Limited Collaboration for supply of cast basalt pipe and pipe fittings to be used in the conveying of abrasive materials such as ash and slurry for core sector industries. (Sources:- Company data, Nirmal Bang Research) Balance of Plant (BoP) and engineering, procurement & construction (EPC): Material Handling & Ash handling solutions form significant portion of BOP. To further leverage the established project management track record of both material handling & ash handling solutions, it has recently begun to undertake BoP contracts. In August 2009 it received first BoP order from CGSPCL in consortium with Vatech Wabag of Rs 993 crores, where the Tecpro s portion is about 85% of the total project. Recently it also bagged 2 BoP orders from APGENCO worth Rs 1978 crores. It includes Rayalaseema Thermal Power Project Stage IV (1x600 MW & Kakatiya Thermal Power Project Stage- II (1x600 MW).

12 Other Business: Tecpro through its subsidiaries are engaged in supply of air pollution control equipment business, waste processing business. It is also engaged in providing turnkey solution for management and processing of municipal solid waste. Though the company has not made any sizeable business, but these business are in high growth sector which would have immense opportunities in future. Strong in house manufacturing facilities: Tecpro has strong in house manufacturing facilities for both material handling and ash handling solutions. These facilities are located at Bhiwadi, in Rajasthan and Bawal in Haryana. Facilities Bawal ( Haryana) Bhiwadi ( Raj) Unit I Bhiwadi ( Raj) Unit II Bhiwadi ( Raj) Unit III Equipment Manufactured Stackers, Reclaimers, Crushers, Screens, Feeders, Fabricated Structure (Material Handling Equipments) Pulleys, Rollers, Idlers, Structure, Feeders, Screens Conveyor Systems, Crushers, Screen parts (Material Handling Equipments) Ash Handling Equipments Casting unit for both MHE & Ash handling. ` (Sources:- Company data, Nirmal Bang Research) Public Issue: In September 2010, it came out with public issue by issuing 0.63 crores fresh shares at the price of Rs 355 mainly to meet working capital requirements.

13 Financials P&L (Rs. In Cr) FY09A FY10A FY11 FY12E Financial Health (Rs. In Cr) FY09A FY10A FY11 FY12E Y/E - March Y / E - March Revenues - Net Share Capital % change 46.6% 105.8% 35.6% 39.6% Reserves & Surplus EBITDA Net Worth Margin (%) 12.6% 15.6% 15.2% 13.7% Total Loans Interest Minority Interest EBDT Deferred Tax Liabilities Depreciation Total Liabilities Other Income Exceptional Items Net Fixed Assets PBT Investments Tax Deferred Tax Assets PAT Current Assets Adj. PAT Inventories Less: Share of Asso & MI Debtors Cons PAT Cash & Bank Cons Adj PAT Loans & Adv other current assets No of Shares Current Assets Current Liabilities Adj Diluted EPS Provisions Cash EPS Current liabilities & Provisions DPS Working Capital Standalone Qtrly 9MFY10 9MFY11 Q4FY10 Q4FY11 Total Assets Revenue Cash Flow (Rs. In Cr) FY09A FY10A FY11 FY12E EBITDA Operating Interest Operating Income EBDT Change in WC Dep Other Adjustment Other Inc CF from Operations Exceptional Items Investment PBT Capex Tax Other Investment Adj PAT Total Investment Adj Diluted EPS (Rs.) Financing Operational Ratio FY09A FY10A FY11 FY12E Dividend Paid EBITDA margin (%) 12.6% 15.6% 15.2% 13.7% Share Capital Adj PAT margin (%) 7.2% 7.5% 6.9% 5.9% Premium / Reserve Adj EPS Growth (%) 19.0% 35.6% 8.8% 19.4% Borrowing Price Earnings (x) Other Income Book Value (Rs.) Other ROE (%) 31.7% 31.2% 20.1% 19.8% Interest ROCE (%) 26.4% 11.6% 8.2% 6.7% Tax Paid Debt Equity Ratio Total Financing Price / Book Value (x) Other Adjustments EV / Sales Net Chg. in Cash EV / EBIDTA Cash at beginning Interest Coverage Cash at end

14 NOTE Disclaimer This Document has been prepared by Nirmal Bang Research (A Division of Nirmal Bang Securities Pvt Ltd). The information, analysis and estimates contained herein are based on Nirmal Bang Research assessment and have been obtained from sources believed to be reliable. This document is meant for the use of the intended recipient only. This document, at best, represents Nirmal Bang Research opinion and is meant for general information only. Nirmal Bang Research, its directors, officers or employees shall not in any way be responsible for the contents stated herein. Nirmal Bang Research expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. This document is not to be considered as an offer to sell or a solicitation to buy any securities. Nirmal Bang Research, its affiliates and their employees may from time to time hold positions in securities referred to herein. Nirmal Bang Research or its affiliates may from time to time solicit from or perform investment banking or other services for any company mentioned in this document