CRISIL retains fair value of Rs 168 to Technofab Engg
CRISIL Research has come out with its report on Technofab Engineering. The research firm continues to value the company based on a P/E multiple of 5x and has retained the fair value of Rs 168 per share. However maintained valuation grade of 5/5 to Technofab.
June 11, 2013 / 16:47 IST
CRISIL Research's report on Technofab Engineering
Technofab Engineering's (Technofab's) Q4FY13 earnings were broadly in line with CRISIL Research's expectations. Revenues increased by just 4.2 percent y-o-y to Rs 1,389 mn as some of the projects (25 percent of the order book) are moving slowly. EBITDA margin improved by 248 bps y-o-y and 332 bps q-o-q to 15.2 percent due to higher margins in the overseas business. Despite significant improvement in operating margin, PAT increased by just 3.4 percent y-o-y to Rs 131 mn on account of high depreciation and interest cost. Order intake remained low due to slowdown in the domestic power sector and a tepid investment climate. We maintain our earnings estimates and the fundamental grade of 3/5.Slow execution of some projects hurt revenue growth
About 25 percent of the projects are either moving slowly or not moving at all. This, along with lower order intake, has impacted revenue growth in the past one year. However, execution of some of the slow-moving power projects has picked up. These projects are in the power sector for clients such as Indiabulls Power, Reliance Power and Lanco Infra. While the current order book stands at Rs 11.2 bn (2.8x TTM sales), which provides revenue visibility for the next two years, timely execution of these projects is a monitorable and a key determinant for revenue growth.Diversification to international markets helped offset domestic slowdown
In FY13, order intake was worth Rs 4.8 bn compared to Rs 7.5 bn in FY12. This was because of subdued investments in the domestic market, particularly in the power sector. However, the company's strategy of diversifying to international markets helped counter this slowdown to some extent. In FY13, it received new orders worth Rs 3.2 bn from overseas markets – worth Rs 1 bn each in the water segment in Zimbabwe and Tanzania, and Rs 0.6 bn in the industrial segment in Liberia.Working capital cycle to increase due to higher inventory and debtors days
Technofab's working capital cycle increased to 120 days in FY13 from 80 days in FY12 due to increase in inventory and debtor days. Receivable days increased to 182 days in FY13 from 151 days in FY12 due to delay in payments from some of the clients such as Lanco Infra, Hindalco and a few public sector companies. Inventory days increased to 40 days in FY13 from 11 days in FY12 due to execution of an order in Mozambique where the company is not liable to get paid against supplies unless there is proportional progress in construction work as per the contract with the client. We expect debtor days to increase further due to expected delays in receipt of payment from the existing clients. Accordingly, we expect working capital cycle to increase to 137 days in FY14 and 143 days in FY15.Earnings estimates and fair value maintained
We continue to value Technofab based on a P/E multiple of 5x and have retained the fair value of Rs 168 per share. At the current market price of Rs 107, our valuation grade is 5/5.Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report. The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"
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