IGI Logo

Electrifying Growth Outlook

After a weak 4QFY21 performance, Techno Electric reported recovery both on profitability as well as execution fronts in 1QFY22, despite a severe COVID second wave. The company is confident of improvement in order flow across all the three emerging verticals- i.e., Data Centre, FGD and Smart Metering in the coming quarters. The management maintained the guidance for the FY22 order flow at Rs20bn. Techno is L1 in orders worth Rs4bn.

Transmission orders from 60GW Green Corridor is also expected in the coming quarters. As the emerging growth engines- FGD, Smart Metering and Data Centre continue to gather pace, Techno is one of the most agile players to capitalize on the transforming domestic infrastructure space. We reiterate our BUY rating on Techno Electric & Engineering with Target price (TP) of Rs453.

* Quarterly performance shows revival, execution to pick up further:

Techno reported a growth of 11.6% YoY (though a decline of 11.8% QoQ) in consolidated revenue to Rs1895mn, marginally lower than our estimate of Rs2037mn. The company reported significant QoQ recovery in EBITDA margin from 8.8% in 4QFY21 to 29.1% in 1QFY22, higher than our estimate of 26%. This coupled with higher other income resulted in 30.7% YoY and 401.9% QoQ growth in net profit to Rs471mn, higher than our estimate of Rs409mn The management is confident of recovery in the order inflow and on the execution front, in the medium term. It expects the revenue of Rs12-12.5bn in FY22. Sale of Kohima Mariani Transmission Asset is expected to be concluded by December 2021. The management expects a strong growth in the business over the next three years, bucking the slow growth trend over the last three years.

* Recovery in margin, Order Inflow visibility remains intact:

Order inflow in 1QFY22 was muted at Rs750mn, due to the COVID second wave. However, the tendering process across the verticals is expected to ramp up in the coming quarters and the management maintained the guidance of Rs 20bn for FY22 order flow. It expects Rs10bn worth of orders from FGD, Rs5bn each from Data Centre and Transmission. Further, it expects Rs2000- 2500mn worth of orders from overseas and Rs4bn of TBCB orders. We remain conservative and expect order flow of Rs17.5bn in FY22. Orderbook outstanding as on March 31, 2021 stands at Rs18.5bn.

* Setting up of Data Centre progressing well:

Setting up of Techno’s first data centre in Chennai is progressing well, while it is in advance stages of land allotment in Kolkata by the State Govt. and has identified a land in Hyderabad as well. The company has been recruiting a team for Data Centre business, which will be based in Gurgaon. Chennai Data Centre will be operational by Dec 22 and Techno hopes to rope in a strategic partner for its Data Centre business by end of CY21, which will own 51-74% stake in the business. The company plans to add a total of 250-300MW of Data Centres capacity in the next few years.

* Valuation & Risks:

We have valued Techno’s EPC business at 18xFY23E P/E and its Wind Power Asset at Book Value. We have not included Kohima Mariani Transmission Asset separately in our SOTP Valuation as its sale consideration has been captured in the cash component. Consequently, the SOTP valuation of Techno Electric & Engineering works out to be Rs453, giving an upside of 55% from the current levels (please refer to Exhibit 2, Page No 2).

The management is confident of strong order inflow in the coming years on account of new business verticals and its entry into burgeoning Data Centre business. Techno remains an attractive play in the domestic infrastructure space. The company’s robust RoIC profile and unlevered balance sheet offer significant headroom for valuation expansion. We reiterate our BUY rating on Techno Electric & Engineering with target price (TP) of Rs453.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at  https://www.mnclgroup.com/disclaimer

SEBI Registration Number : INZ000043833

Above views are of the author and not of the website kindly read disclaimer