Techno Electric & Engineering - 3QFY17 Result Update - Strong Quarter; Order Pipeline Remains Robust - Reliance Securities

Techno Electric & Engineering (TEEC) has reported an impressive performance in 3QFY17 backed by improved sales and higher PLFs in wind segment. Its sales surged by11.8% YoY, while reported net profit zoomed by 44.4% YoY on reversal of losses in wind segment and better margins in EPC segment. Aided by both EPC & Wind segments, its overall margins improved significantly by 834bps to 21.1%. We continue to remain positive on TEEC on the back of presence across entire power sector value chain i.e. generation, transmission and distribution and robust revenue visibility backed by strong order book and lower execution risk. As strong order book, likely ramp-up in T&D capex and robust FCF generation and high EBITDA margins augur well for TEEC, we maintain our BUY recommendation with an unrevised Target Price of Rs411.

Key Investment Highlights

Wind Segment Boosts Top-line Growth: Net sales rose by 11.8% YoY to Rs3.5bn. Sales from segment sales grew substantially to Rs304mn from Rs38.7mn in 3QFY16 on the back of increase in tariff and higher PLF owing to favourable ruling which earlier prevented TN SEB from curtailing wind power evacuation. Though EPC segment sales grew by 4.1% YoY to Rs3.25bn, there exists minimal execution risk as 85% of the outstanding orders (out of total order book of Rs23bn) are from PGCIL & NTPC.

Margins Improve Substantially: TEEC's overall margins surged by 834bps YoY to 21.1% aided by both EPC & Wind segments. Notably, wind segment managed to back in the black with Rs130.1mn EBIT profit in 3QFY17 from Rs87.4mn EBIT loss in 3QFY16. Reported profit zoomed by 44.4% YoY to Rs405mn on reversal of losses in wind segment and improved margins (15.1% in 3QFY17 from 11.5% in 3QFY16) in EPC segment.

Order Book: TEEC's current order backlog stands strong at Rs23bn with L1 position in orders worth Rs5bn. Order pipeline remains strong as TEEC expects ordering to pick-up from select SEBs like AP, Telangana, Rajasthan, Jharkhand and Madhya Pradesh.

Outlook & Valuation

We continue to believe that the likely ramp-up in overall investments in T&D space augurs well for TEEC's EPC business, while prudent capital allocation with synergy from project business will boost its growth and profitability. We have valued EPC business at 18x FY19E EPS, wind business at 1.0x equity book value, BOOT projects at 1.3-1.5x equity book value and cash at 1.0x book value. We maintain our BUY recommendation with an SOTP-based Target Price of Rs411.

Shares of TECHNO ELECTRIC AND ENGINEERING CO. LTD. was last trading in BSE at Rs.370.5 as compared to the previous close of Rs. 372.1. The total number of shares traded during the day was 34035 in over 697 trades.

The stock hit an intraday high of Rs. 375 and intraday low of 369.1. The net turnover during the day was Rs. 12603883.

Source : Equity Bulls

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