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Research
Technofab Engineering - Witnessing margin pressure - Ventura
Posted On : 2012-11-19 00:20:05( TIMEZONE : IST )
Outlook
While the infrastructure sector is reeling under the pressure of high debt burden and a slowing economy, Technofab Engineering Ltd (TEL) with its large order book of over Rs 1,100 crore and low debt equity of ~0.3x is expected to outperform the industry. Owing to revenue visibility (2.7x FY12 revenues), we expect the revenues to grow at a CAGR of 22.5% to Rs 566.3 crore over the forecast period of FY13-14. At a CMP of Rs 123, TEL is trading at 3.5x and 2.7x its estimated earnings for FY13 and FY14 and we reiterate a BUY with the price target of Rs 182 (target 4.0x FY14 EPS) representing a potential upside of 48%.
Key Takeaways
- TEL recorded 17.2% YoY in Q2FY13 to Rs 109.9 crore as against Rs 93.8 crore in Q2FY12 led by timely execution of on-going projects. Power and Water segment continues to be the higher contributory to the top-line with 39% and 34% respectively, followed by Oil & Gas (16%), Industrials (10%) and Electricals (1%) segments.
- EBITDA of the company was lower by 3.8% YoY to Rs 12.8 crore in Q2FY13 from Rs 13.3 crore in Q2FY12 on account of ~78% YoY increase in input costs. Finance costs were higher during the quarter at Rs 1.6 crore (+13.8% YoY). Consequently, PAT was at Rs 7.2 crore in Q2FY13 as against Rs 7.6 crore (-5.0% YoY) owing to the decline in other income (Rs 0.07 crore v/s Rs 0.2 crore; -74.5% YoY) and rise in finance costs (+13.8% YoY).
- EBITDA margins for the quarter contracted by 260 bps YoY to 11.6% from 14.2% in Q2FY12. It also contracted on sequential basis by 190 bps. PAT margin contracted by 150 bps YoY to 6.6% in Q2FY13 as against 8.1% in Q2FY12. The management attributed intense competition coupled with continued slowdown in domestic industry for the margin pressure. However, it is confident of improving the margins going ahead.
- The company has received order inflow of ~Rs 350 crore during H1FY13 which takes its order back log to Rs 1,100 crore (2.9x FY12 revenues). Moreover, the company has guided to achieve order book of ~Rs 950-1,000 crore in FY13. As of H1FY13, its mainstream order book comprises of Power (Thermal - 28%, Nuclear - 2%) and Water (29%) followed by Oil & Gas (9%), Industrials (13%) and Electrical distribution & rural electrification (13%).
