Buy Tecpro Systems; target of Rs 370: PINC Research

“Tecpro Systems (TSL) Q4FY11 results were in line with our expectations. Sales registered 31% YoY growth to Rs9.6bn. OPM improved by 30bps YoY to 20.7% and bottom line grew by 21% to Rs1.1bn impacted by higher interest cost. On the basis of current enquiry levels, management foresees good traction of orders from the power and cement sectors.”

“Management confirmed that all the orders in the order book are financially closed, minimizing risks of any delay or cancellation. Management doesn’t foresee any delay in execution of AP Genco BoP order as it is financially closed and all the required clearances and fuel linkages are in place. Further, the company is expecting sizeable orders from power (CHP, AHP and BoP) and cement (Waste Heat Recovery) sectors in the near future. In FY11, revenues witnessed a healthy growth of 35% to Rs19.7bn and OPM improved by ~170bps to 15.2%. However, bottom line registered a growth of 24% to Rs1.4bn as it was adversely impacted by higher interest cost which grew by 160% to Rs926mn on account of higher working capital requirement.”

“Order inflows were up 96% to Rs43.5bn in FY11 mainly led by power sector. The current order book at end of Q4FY11 stands at Rs43.7bn with power sector commanding 84% share. Segment wise Power BoP contributed 48% to the order book followed by Material Handling at 43% and Ash handling at 9%. We believe power sector will continue to dominate the order book. We expect sales CAGR of 26% (FY11-13E). We expect margins to decline on account of higher share of large ticket size orders entailing long execution cycle and higher working capital requirement, but still they would remain healthy. At CMP the stock is attractively valued at 9.5x FY12E given strong order book, healthy margins and robust order pipeline. We maintain ‘BUY’ with a target price of Rs 370 (12x FY12E),” says PINC Research report.

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