Techno Electric & Engineering - Strong EPC margins support earnings - ICICI Securities

Techno Electric & Engineering (TEEC) has reported better-than-expected margins under EPC segments in Q1FY21. The company was able to control the fixed expenses focusing on reduction in employee cost and other expenditure. It won Rs2.3bn worth of orders in the quarter and is L1 in another Rs700mn order. Order intake pipeline is strong, execution traction is gradually improving and the management is confident of a flat revenue growth in FY21E, expecting pick up in H2FY21. Factoring the stress in wind segment pricing and margins, we cut our earnings by 1.3% and 9.7% for FY21E & FY22E, respectively. Given strong balance sheet with cash and equivalents of Rs4bn, strong orderbook and healthy order intake outlook, we maintain BUY with a revised SoTP-based target price of Rs252 (previously: Rs231).

- Strong EPC margins support earnings: EPC revenues declined 25% YoY to Rs1.5bn despite loss of 40 days due to lockdown. Furthermore, correction in pricing of renewable energy certificates resulted in 45% drop in energy segment. Given the gradual pick up in execution, the management maintains EPC revenue guidance of ~Rs11-12bn in FY21E.

- Healthy order intake pipeline: Order intake in Q1FY21 stood at Rs3bn, which included L1 of Rs700mn and the company is confident regarding Rs15-20bn order intake during FY21E. The company has bid in NTPC Lot-6 and is targeting ~Rs7.5bn worth of FGD orders for FY21E. Other opportunities that will support order intake in FY21E include Rs5bn worth of orders from transmission and opportunities from smart metering and Statcom packages to be tendered in Nov'21.

- Maintain BUY on healthy cashflows and benign valuation: Despite challenges, the company is confident of maintaining margins at ~15%. Given the headwinds under wind segment, we cut earnings by 1.3% and 9.7% for FY21E and FY22E, respectively. However, given healthy growth outlook and cashflows, we maintain BUY with a revised SoTP-based target price of Rs252 (previously: Rs231). We have increased our valuation multiple to 15x versus 13x FY22E earnings, given healthy growth and order intake outlook and strong balance sheet. Using the SoTP methodology, we value the standalone EPC business at Rs194 (15x FY22E earnings), discounted cashflows from wind assets at Rs41 and transmission assets at Rs18 per share.

Shares of Techno Electric & Engineering Company Ltd was last trading in BSE at Rs.235.05 as compared to the previous close of Rs. 205.55. The total number of shares traded during the day was 9225 in over 955 trades.

The stock hit an intraday high of Rs. 243.55 and intraday low of 214.05. The net turnover during the day was Rs. 2106153.

Source : Equity Bulls

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