Expansion on track; order book healthier: Techno Electric

Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » ALSO READ See latest News about Techno Electric See previous management interviews See what other Experts & Brokerages are saying about Techno Electric Techno Electric BSE | NSE 29/05/12 Are Mutual Funds betting on Techno Electric?

Renewable energy generation is slowly beginning to get attention in India. Right incentives in place can help wind power can play a major role in securing a sustainable and clean energy future.

Kolkata-based Techno Electric & Engineering is one such company which has recently commissioned its Phase I expansion of 101.4 MW through wind power by Q2FY12 and Phase II of 100 MW by 2012.

Managing director Padam Prakash Gupta said the transmission line project in Haryana is expected to be commissioned by December 2011.

The company has guided for 15-20% earnings growth for its EPC business in FY12.

Below is a verbatim transcript of his interview with CNBC-TV18's Latha Venkatesh and Gautam Broker. For complete details watch the accompanying video.

Q: You are on track for a healthy order book expansion. What is your current order book at and the spaces that you operate in? Do you compete with bigger capital goods players which supply to companies like NTPC as well?

A: Yes. We are a regular supplier of balance of plant equipments to NTPC and BHEL. We also supply substations right up to 765 kv to Power Grid and other state utilities.

Q: There have been many new entrants and big players - are you facing increased pressure in terms of pricing?

A: Yes, there is pressure on pricing but Techno Electric has never been led by a topline growth. We always look for 10% to 20% managed growth on year to year basis and we don't believe this sector can grow by 30-40% or so. Unless we see our bottomline which is the main focus for us only then do we look for those contracts to us. We also look for contracts which have higher content of services and lesser content of equipments.

Q: You have a project which you are implementing for Haryana on a build, own, operate and transfer (BOOT) basis which is expected to start generating revenues soon. By when will it start generating revenues?

A: We have implemented this project in record time of one year from the date of financial closure. Our revenue starts from January 2012. We are hopeful to commission it in November itself this year that will be entitled for some bonus as per the Transmission Supply Agreement (TSA). We will get about 40% of the revenue as a bonus to us.

Q: So what does that take your revenue growth in the fourth quarter or in the full year to?

A: There will be a growth in the fourth quarter but this project will be contributing more in the SPV. We will only be earning revenue as O&M revenue or the dividends that the SPV pays to us because the transmission projects are more of an annuity type returns. We benefit by doing an EPC.

Q: Is it a 100% SPV owned by Techno Electric?

A: It is a joint venture with Kalpataru on 50-50 basis.

Q: What can we estimate in terms of revenue growth in the current year over last year?

A: We are anticipating a growth of 15% in our parent company on a consolidated basis.

Q: Your EBITDA growth has been strong in the past. Do you expect to maintain your margins?

A: Yes. We would rather improve on the margins but the major growth in Techno Electric is happening through our investment in non-conventional energy. Other than the Haryana project we also took up a 101.5 megawatt of wind power project in last October. That project now stands fully commissioned.

Q: You did Rs 172 crore in the first quarter. What can be expected in the fourth quarter because you are going to get this bonus and probably it will enter your P&L in the form of a dividend?

A: More than bonus, our earnings will get a leg up in Q2 by the wind business. We have almost 200 megawatt operating now at a wind power in Tamil Nadu and this is the main season. The season of wind power is always from June to October.

Q: You did Rs 17.5 in terms of earnings in FY11. How much will the growth be in earnings in FY12?

A: On what we made last year, the growth in EPS should come to 20%.

Q: In the last quarter, you did Rs 1,600 crore in EPC and about Rs 100 crore in wind energy. What's the ratio going to look like one year down the line? What kind of a percentage share do you see between your EPC business and your wind business?

A: This year we expect the wind business to contribute about 15% to 16% of the topline, which over the next five years our target for it to grow is 30%.

Q: In the last two weeks your stock has reason by 20%. Was there any announcement that investors should know?

A: We successfully completed the wind power project on time.