Buy Techno Electric; tgt of Rs 297: Networth Stock Broking

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Buy Techno Electric; tgt of Rs 297: Networth Stock Broking

Networth Stock Broking is bullish on Techno Electric and has recommended buy rating on the stock with a target of Rs 297 in its June 8, 2011 research report.

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Networth Stock Broking is bullish on Techno Electric and has recommended buy rating on the stock with a target of Rs 297 in its June 8, 2011 research report.

"Techno Electric and Engineering Company Ltd. (TEEC) diversified into wind energy by acquiring 95.45 MW of wind assets in FY10. This diversification augurs well for TEEC as the excess cash from the EPC business gets deployed well in the wind business which is a very promising area. With the SEB's being forced to buy Renewable Energy Certificates (REC's) to meet their renewable energy obligation, the expansion plans (TEEC has plans to raise the wind capacity to 200MW by June 2011) are estimated to add value to the company."

"From current 95.45 MW of wind capacity, TEEC will have 200MW of capacity by end of FY12. The company plans to have 1250 MW of capacity by end of XIth Five year plan. TEEC has PPA for its existing capacity while the new capacity is under the REC scheme of CERC wherein the REC's are tradable on the power exchange at a floor price of Rs. 1.5/kwh and ceiling of Rs.3.9/kwh. Besides, the existing capacity is registered with UNFCC for 125000 carbon credits. All this is estimated to add to the bottom-line of the company. The share of wind energy in the total revenue is set to rise from current 10% to 16% by FY13E while the share in profits is set to rise to 58% by FY13E. TEEC has been in the EPC business for more than 30 years now and has a strong clientele. It clocks EBIDTA margins close to 15% (highest amongst the peers) in this segment while it has one of the lowest working capital cycle in the industry. Before acquiring wind assets TEEC had close to Rs.1.9 bn of cash on their total balance sheet of Rs. 2.6 bn. With growing competition, the return ratios in this segment are likely to be subdued and hence this diversification into wind energy. EPC is estimated to do well growing at a CAGR of 14% in FY11-FY13E period with EBIDTA margins at 13.5% as competition impacts margins. Consequently, EPC is likely to generate free cash flows which will aid expansion of wind business."

"Besides EPC and wind business, TEEC recently won transmission BOT project along with Kalpataru Power for setting up the transmission lines in Jhajjar, Haryana. It's a JV with TEEC's share at 49%. The same is reflected as an investment for TEEC. Given its diversified business we have valued TEEC on SOTP basis. We have valued the EPC business at a target P/E multiple of 10 on FY13E EPS arriving at a value of Rs. 164/share. The wind business has been valued on FCFE basis with CoE of 17.4%, growth rate of 3% deriving value of Rs. 126/share. Transmission business has been valued at cost at Rs. 7/share. The SOTP TP is thus Rs. 297/share. At the target price the company will trade at a P/E multiple of 13x on FY13E EPS and at 8x FY13E EV/EBIDTA," says Networth Stock Broking research report.

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To read the full report click on the attachment