Buy Techno Electric & Engineering Target Rs.385- Icici Direct
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Impressive order inflows to perk up growth
About the stock: Techno Electric Engineering Company (TEEC) is one of the leading power-infrastructure companies engaged in three primary business segments; EPC (construction), renewable power generation (wind power) and public-private partnership (PPP) projects in transmission & distribution (T&D).
* EPC Business: Contributed ~92% to FY22 revenue, generated excellent RoCE of 50-75% over the past five years. PPP projects business: It is present in BOOT/BOOM transmission projects in PPP mode. Wind Power: TEEC owns ~130 MW of wind power generation capacity
Q1FY23 Results: TEEC reported a weak set of Q1FY23 numbers.
* Consolidated revenues came in at | 173 crore, down 8.7% YoY impacted by weak execution in EPC segment
* EBITDA came in at | 47.8 crore, down 13.4% YoY with margins at 27.6%, contracted by 151 bps YoY
* Consequently, PAT de-grew 21.1% YoY to | 36 crore, impacted by lower other income
What should investors do? Strong pick-up in execution, sale of wind energy assets and foray into data centre business to drive strong financial performance, going ahead.
* We continue to remain positive and retain our BUY rating on the stock
Target Price and Valuation: We value TEEC at | 385 i.e. 13x PE on FY24E
Key triggers for future price performance:
* Entry into data centre, smart meters and FGD market and become significant EPC player over the next three to four years
* Improved revenue visibility, healthy balance sheet and cash balance of | 1200 crore
* We expect revenue, EBITDA to grow at CAGR of ~25.8%, 29.9%, respectively, in FY22-24E
Alternate Stock Idea: We also like Thermax in our coverage.
* Recent broad based recovery in order inflows, strong order enquiry pipeline across industrial sectors likely to ensure decent order inflows, going forward
* BUY with target price of | 2405
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