We recommend ?BUY? on TECHNO ELECTRIC & ENGINEERING for a target of INR 444 – valuing the company at P/E 19x of FY19E Earning.
Investment Rationale:
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- Rich experience: Rich experience of more than three decades in India?s challenging EPC space.
- Timeline driven: Demonstrated their capability by delivering projects across shrinking timelines that have now become industry benchmarks in terms of project completion.
- Pan-India presence: Successfully executed over 340 pan-India projects;
- Committed to compliance: Our quality commitment is accredited with ISO 9001:2008, ISO 14001:2004 and BS OHSAS 18001:2007. This ensures unmatched quality commitment, environmental management and employee safety.
- Asset-light model: Asset-light, lean organization structure has helped to control their overhead structure has enabled them to have a margin advantage over their peers.
- Best-in-class technology: Our business model gives us the flexibility to partner with the best vendors from around the world.
- Awards and recognition: Our credibility has been recognised and awarded by several institutions over the years.
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Valuations And View:
Techno is one of the leading players in the country?s power-infrastructure space. Techno is engaged in three business types ? EPC, Asset Ownership, and Operations & Maintenance. Company has grown business to include Green Power, and Build Own Operate and Transfer (BOOT) and Build Own Operate and Maintain (BOOM) project segments as well. We value the business at 19x FY19E EPS and recommend a BUY rating on the stock with a target price of INR 444 per share.
Risk & Concerns
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- Industry Risk: Slowdown in the industry could impact the company?s business sustainability.
- Liquidity Risk: Any delay in receivables could affect the company?s viability.
- Segment Risk: Presence in a single business segment may hamper the growth of the Company.
- Timebound completion Risk: Any delay in the completion of project could affect the Company?s profitability.
- Working capital Risk: Working capital requirement may increase in an event of delayed payments by clients
- Price-based competition Risk: Inability to remain cost-competitive could mean the Company losing out on contracts to its sectoral peers.
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Company Background
Established in 1963, Techno Electric & Engineering Company (Techno) is one of the leading players in the country?s power-infrastructure space. At Techno, we are engaged in three business types ? EPC, Asset Ownership, and Operations & Maintenance. As a prominent engineering, procurement and construction (EPC) company in India?s power sector, we provide services to all three industry segments – generation, transmission and distribution. We have grown our business to include Green Power, and Build Own Operate and Transfer (BOOT) and Build Own Operate and Maintain (BOOM) project segments as well.
Techno provides complete solutions for captive power plants, balance of plant (BOP) for thermal and hydro power projects. The Company extended into the captive waste heat recovery segment in 2006 through the delivery of integrated turnkey solutions. Techno?s capabilities comprise basic engineering, design, detailed engineering, civil cum structural works, commissioning and stabilization. Over the decades, the Company has established a formidable record in the execution of up to 100 MW captive projects in record time. Techno has demonstrated its excellence in the transmission and distribution segment. Within the EHV substation segment, Techno services comprise the EPC delivery of air-insulated and gas insulated substations (GIS).
Industry Overview
Every industry around the world have been transformed by technological innovation within the last couple of decades. At last, innovation in the power sector is finally taking place as well. To bring clean, affordable electricity to all of its citizens, India has announced an impressive goal to add 60GW of medium and large scale grid connected solar projects and 40GW of rooftop solar by 2022. Adding clean energy will drastically change the lives of India?s citizens while simultaneously working to fulfil its international commitments to combat climate change.
Achieving nationwide electrification will be no easy feat, no matter whether it is through either source of energy. It will require bringing electricity to about 240 million people, many of which live in rural villages where nearly half of households lack access to electricity. Utilities typically cannot afford to buy more expensive power generation when demand is high, which leads to regular blackouts. India has an enormous opportunity to leapfrog the largescale, centralised power system paradigm that dominated the 20th century, and instead settle into a model of small-scale, distributed power systems that are cleaner, more affordable, and more reliable at once.
