BUY Techno Electric and Engineering: AnandRathi Institutional Research

Techno Electric has delivered in Q3 one of its best quarterly performances, largely driven by the better pace of execution; Buy with a target price of Rs 575

Healthy top line; margins compress on higher levy: Powered by the healthy pace of execution, Techno Electric recorded its best ever quarterly revenue (up 94% yoy to ~Rs. 3.1bn). The healthy operating performance was partially contained by lower margins on account of a 2% rise in the service tax rate (wef. 1st Oct'15; not reimbursable). Besides, adverse movements in forex contained the financial performance. Notwithstanding the compressed margin and forex loss, standalone earnings doubled due to the lower effective tax rate and efficient working capital management (hence, contained finance costs).

Consolidated financials even better: Even with lower capacity (45MW sold in Q1 FY16) and PLFs in energy, consolidated financials turned out better than standalone financials. Consolidated earnings more than doubled due to investment income on cash received from sale of wind assets. Consolidated revenue and profit were up, respectively, ~75% and 125% yoy.

Revised earnings estimates: In order to factor in the higher service tax rate, we lower our FY16e, FY17e and FY18e earnings, respectively, ~13%/~12%/~23%. Earnings estimates take into account assumed delays in award of orders by PGCIL (as prioritised projects).

Valuation: At the CMP, the stock is available at PBV of 2.9x FY18e standalone book value of ~Rs. 168. We ascribe a price of ~Rs. 575 with EPC contributing ~Rs. 419 (18x FY18e EPS), ~Rs. 16 for two BOOT/BOOM projects (DCF) and wind assets at ~Rs. 139 (at last transaction value). We retain our Buy on the stock as we see the company emerging as one of the key beneficiaries of the higher investment in T&D. We also favour the company for its excellent execution abilities and efficient capital management. Risk. Any significant delay in award of orders.

Shares of TECHNO ELECTRIC AND ENGINEERING CO. LTD. was last trading in BSE at Rs.467.9 as compared to the previous close of Rs. 467.35. The total number of shares traded during the day was 1616 in over 32 trades.

The stock hit an intraday high of Rs. 468.9 and intraday low of 450. The net turnover during the day was Rs. 728977.

Source : Equity Bulls

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