Buy Techno Electric; target of Rs 445: Centrum

The management expects PGCIL’s annual capex outlay on transmission to be around Rs250bn and SEBs to spend Rs 500bn over the next five years. Of the capex outlay, nearly 40% would be spent on transformation capacity and 60% on lines vs the current trend of 30% being spent on transformation capacity and 70% on lines. UDAY scheme will be an enabler (in the interim) in reviving the capex cycle apart from the increase in the financing momentum from multilateral funding agencies such as ADB, World Bank, PFC, REC, etc. The increased pace of orders will ensure growth for all T&D players.

The company believes that its healthy cash balance will help it reap benefits when the industry led by SEBs eventually moves to a BOT model. This apart, the company maintains that it will be asset light model in the future and hence apart from BOOT/BOOM projects, if cash is still idle then it may return it to shareholders. Our TP of Rs445 is based on SoTP of Mar’18E. TEEC’s superior earnings, lower PEG(x) and FCF yield of 4% cap the downside.