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Techno Electric (TEEC) is a leading EPC player in domestic power EPC business, with capabilities to provide solutions in T&D (EPC work for Substation, Distribution management system) and power generation (Balance of Plant, FGD) and has diversified into high growth segments such as Smart meter and Data Centre. TEEC reported strong 3QFY24 performance with revenue growth of 76.3% YoY to INR 3.3bn, with EBITDA margins expansion of 460bps YoY to 17.3%. PAT came in at INR 919mn vs INR 315bn in 3QFY23. 9MFY24 order inflow came in at INR 27.4bn. Order book stands healthy at INR 54.4bn (4x TTM revenue) providing strong revenue visibility going forward. Order prospects stand strong with orders expected from T&D segment and smart metering space. Management expects revenue to reach INR 32bn by FY26. We transfer coverage to Deepak Agarwal. Maintain BUY rating on stock with SOTP of INR 930 valuing EPC business at 25x FY26E.

* Strong execution resulted in profitable growth:

Consolidated revenue came in at INR 3.3bn up 76% YoY, driven by strong opening order book (INR 43.6bn as on 2QFY24). EBITDA margins expanded 460 bps YoY to 17.3%, due to operating leverage (gross margin expansion 30bps YoY) and on low base. EBITDA at INR 563mn vs INR 234mn last year. EPC margins at 17% vs 12.2% in 3QFY23 (low base which was impacted due to due to lower absorption of fixed costs and higher overseas freight costs). Net profit at INR 919mn (vs INR 315mn-3QFY23). Management highlighted sustainable EBIT margin to be 13% in long term.

* Strong order book position and order prospects:

Order book stands healthy at INR 54.4bn as on 3QFY24 (4x TTM sales). Increasing thrust on renewable energy has resulted in increased demand for transmission infrastructure and smart grid. Orders worth INR400bn are expected to be ordered out in T&D providing strong order inflow visibility for company like TEEC. While on smart metering front, GoI targets to install 250mn units by 2025 from 1mn currently (replacement of traditional electric meter). Management expects orders of 2mn units/year for next couple of year translating to order worth INR 20-25/annum going ahead.

* We resume coverage with BUY rating and TP of INR 930: We believe TEEC strong execution track record, technical capabilities, presence across power value chain and diversified sector, augurs well for company to capitalise on upcoming opportunity in T&D, FGD, smart metering and Data Centre. We expect revenue of INR 24.9bn/31.9bn and EPS of INR 29.5/36 for FY25/26 respectively (management EPS guidance of INR35/INR45 for FY25/26E) we are not factoring contribution from Data Centre in our earning. Order book stands healthy at INR 54bn as on Dec’23, along with strong order prospect (total transmission opportunity size of INR 400bn). We resume coverage on stock with SOTP of INR 930 valuing EPC business at 25x FY26E. Key Risk: Delay in ordering activity in T&D segment, increased competition in smart metering space and arising balance sheet risk due to asset heavy model (smart meters and data centre)

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CIN Number : L67120MH1986PLC038784