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Capitalizing on power and data-center theme

We assume coverage on Techno Electric (TEEC) with a BUY recommendation and ~16% upside. TEEC, a top EPC player with capabilities to provide solutions in T&D (EPC work for Substation, Distribution management system) and power generation (BoP and FGD), has recently diversified into high-growth businesses such as smart meter and data center. With a robust order backlog of Rs92bn, along with a strong enquiry pipeline, we expect TEEC’s revenue to more than double in the next 2 years. Order prospects are resilient, supported by the T&D segment and smart metering space, given GoI’s aggressive targets for renewable capacity adds and RDSS-led ordering. We expect multifold growth in the data-center segment on the back of rising digitization globally benefiting TEEC. We retain BUY on TEEC; our new SOTP-based TP is Rs1,400/sh. We value EPC business at 30x FY26E. The higher multiple is justified, given TEEC’s robust balance sheet, sharp jump in order-backlog, and favorable tailwinds.

FY24 Financial Summary and Guidance

TEEC recorded a stellar performance during FY24, with revenue/EBITDA of Rs15bn/2bn (+81%/+142% YoY). Gross margins for the full year dipped to 22.8% (-179bps YoY). Meanwhile, EBITDAM came in at 13.9% (+349bps YoY). This is on account of manpower expenses/other expenses as a % of sales declining to 3.1%/5.8% (-201bps/-327bps YoY). Q4FY24 revenue grew to Rs3.1bn (+41%/+35% YoY/QoQ), with EBITDAM of 12.4% (+1,010bps/-488bps YoY/QoQ). FY24 OCF turned negative to -Rs1.9bn (vs FY23: +Rs93mn), majorly on account of working capital changes. Going ahead, Management guidance to FY25E/26E revenue stands at Rs2.5/3.5bn (FY24-26E CAGR of +50%). Our revenue estimates are in line with Management guidance, and we expect margins to expand to 14.7%/15.6% on account of operating leverage kicking in.

Growth prospects leading to top-level management hiring

TEEC’s robust order book at end-FY24, worth Rs92bn (vs FY23: Rs37bn), coupled with L1 position as of date at Rs10bn, depicts the strong order inquiry. Albeit order inflow guidance remains conservative at Rs50bn for FY25E. In the data center segment, Mgmt. has till date incurred capex of ~Rs3bn towards phase1 of its ~6MW Chennai center. FPO inflow of Rs12.5bn is scheduled for completion during H1FY24. Expected commissioning of the 24MW project in its entirety is scheduled for Mar-26. Additionally, TEEC won an order of ~Rs10bn from RailTel, to set up data centers in 100 locations spanning across 23 of the 28 states. TEEC has been onboarding recruits at the top management level who will be responsible for the respective segments. This move is likely to bode well for taking on a new and complex set of orders going ahead. Valuations The strong order backlog will translate into FY26E revenue/EBITDA increasing 8%/10% from previous estimates, resulting in earnings growing by 24% during FY26E. Other than revenue growth, reduction in capitalization estimate leading to fall in depreciation will also add to PAT growth. We maintain our BUY rating with new SoTP-based TP of Rs1,400/sh, valuing the EPC business at 30x FY26E; the higher multiple is justified, given Company’s robust balance sheet.

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