Techno Electric & Engineering Co Ltd

ANTIQUE STOCK BROKING LIMITED 2 June 2016 1 Current Reco Previous Reco CMP Renjith Sivaram +91 22 4031 3414 renjith.sivaram@antiquelimited.com Dhirendra Tiwari +91 22 4031 3436 dhirendra.tiwari@antiquelimited.com Market data Sensex : 26,714 Sector : Industrial Market Cap (INRbn) : 30.9 Market Cap (USDbn) : 0.459 O/S Shares (m) : 57.1 52-wk HI/LO (INR) : 590/401 Avg Daily Vol ('000) : 3 Bloomberg : TEEC IN Returns (%) 1m 3m 6m 12m Absolute 4 22 (4) 20 Relative (0) 8 (6) 25 : BUY : BUY : INR540 Target Price : INR681 Potential Return : 26% Valuation FY16 FY17e F718e EPS (INR) 20.3 33.7 37.6 P/E(x) 26.5 16.0 14.4 P/BV(x) 3.0 2.6 2.3 EV/EBITDA(x) 15.7 11.5 9.7 Dividend Yield (%) 0.3 0.4 0.4 Shareholding pattern Promoters : 58% Public : 42% Others : 0% Price performance vs Nifty 140 120 100 80 Jun-15 Oct-15 Feb-16 Jun-16 Techno Electric NIFTY Indexed to 100 4QFY16 RESULT REVIEW Techno Electric & Engineering Co Ltd Strong execution, healthy margins and order intake lend visibility Robust execution under the EPC segment resulted in 47% growth of standalone revenue to INR 3.2 bn. EBIDTA margins which was impacted in 3QFY16 witnessed improved sequential traction at 14.3%. Tax rate was low at 12% resulting in 78% growth of PAT to INR 495 m. Order intake was healthy at INR 6.1 bn for 4Q with current order book of Rs 26 bn (2.5x BTB) providing growth visibility. Order pipeline is healthy and the company expects to book INR 13-15 bn of orders in FY17e excluding solar orders. The company is also in pursuit of transmission BOT projects, given its successful track record is hopeful to win one of the BOT projects. Given the better than expected earnings we have raised our FY17e/18e earnings by 3% at INR 33.7 and INR 37.6, respectively and maintain Buy with revised SOTP target price of INR 681 (18x FY18e standalone earnings, INR 101 for wind assets, INR 18 for transmission BOT projects.) Margins normalize sequentially leading better operational performance. Standalone revenue grew 47% to Rs 3.2 bn led by strong execution under EPC segment (+48% YoY). EBIDTA margins which were impacted in 3QFY16 improved sequentially at 14.3% (down 100 bps YoY). EPC segment margins had witnessed 100 bps YoY at 17% offsetting lower margins under wind power. Lower tax rate of 12% led to 78% YoY growth in PAT at INR 495 m. Healthy order pipeline provide growth visibility Current order book of Rs 26 bn (2.5x BTB) with an order pipeline of Rs 15 bn provide growth visibility. The company targets Rs 13 bn standalone revenue in FY17E and this is likely to increase to Rs 1.5 bn if they win any solar project. There are six solar contracts each amounting to Rs 7.5 bn and eight companies are technically qualified to participate. ~ 75% of the order intake is from PGCIL and ~50% is without Chinese participation. Major SEBs under which activity has increased are Rajasthan, MP, Telengana and North-east. Outlook & Valuation The company will focus more on execution in FY17e having crossed the record INR 10 bn of EPC revenue in FY16 for the first time. The new contracts which are bidded takes into account the higher service tax, hence margin are not expected to decline much, however, the quarterly margins volatility is expected to continue. Earnings Summary Year ended March (INRm) FY14 FY15 FY16 FY17e FY18e Revenues(INRm) 7,085 7,939 10,972 13,574 15,724 EBITDA(INRm) 1,926 2,080 2,213 2,974 3,256 EBITDA Margin (%) 27.2 26.2 20.2 21.9 20.7 PAT(INRm) 887 1,062 1,163 1,922 2,146 PAT growth (%) (27.3) 20.0 10.5 65.5 11.7 EPS (INR) 15.3 18.4 20.3 33.7 37.6 EPS growth (%) (27.3) 20.0 10.5 65.5 11.7 P/E(x) 35.2 29.3 26.5 16.0 14.4 P/BV(x) 3.7 3.4 3.0 2.6 2.3 EV/EBITDA(x) 18.8 17.2 15.7 11.5 9.7

ANTIQUE STOCK BROKING LIMITED 2 June 2016 2 Key concall takeaways EBITDA margins for the EPC division stood at ~16.7% for Q4FY16 and ~14.3% for FY16. Management expects margins to see a 40bps- 50bps improvement in FY17. However, any contribution from solar orders would be margin-dilutive as management expects a 10% margin for such orders. Order Inflows in FY16 were INR 15bn, resulting in INR26bn, PGCIL and NTPC account for ~75% of the order backlog. Management targets INR 13bn to INR 15bn order intake in FY17e. The company is already L1 for orders valued at INR 3.5bn and the bid pipeline stands at INR 10bn of orders (bids yet to be opened). Rajasthan, Madhya Pradesh, Telangana, Uttar Pradesh, Karnataka and North-east SEBs as some of the most active SEBs currently. In solar EPC, the company is seeking to participate in NTPC's Andhra Pradesh solar project. Management expects bidding to take place in the 1st week of July. INR 5bn- 10bn is the average package size from solar EPC In BOOT/BOOM, Patran project is expected to be commissioned this week. Management guides for INR 10bn of income from this project over the complete concession period of 35 years with a capital cost of INR 2bn and an EPC size of INR 1.8bn. The wind tariff rates have increased by 25% from April 2016, hence the overall margins of the wind power segment is expected to improve going forward. However,management is in discussions with prospective buyers and sees easing of challenges to come to aid the exit process. Quarterly financial trend INR m Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Net Sales 1,505 1,587 1,618 2,182 1,831 2,126 3,144 3,227 YOY GROWTH (%) 15.7 26.5 30.1 1.8 21.7 34.0 94.4 47.9 EBITDA 227 306 227 337 278 435 357 462 Margins (%) 15.1 19.3 14.0 15.4 15.2 20.5 11.3 14.3 YOY GROWTH (%) 9.4 25.5 38.7 50.8 22.9 42.3 57.4 37.1 Depreciation 39 39 39 19 35 34 33 35 EBIT 188 267 188 318 244 401 324 427 Margins (%) 12.5 16.8 11.6 14.6 13.3 18.9 10.3 13.2 YOY GROWTH (%) 11.0 29.6 50.6 70.8 29.6 50.3 72.0 34.4 Other Income 14 166 7 53 8 90 7 174 Interest 42 47 41 39 29 33 31 53 PBT 160 387 154 332 223 458 300 573 Exceptional Items (8) (7) (2) 16 (7) (2) (13) (12) PBT 152 379 152 349 216 456 287 560 Margins (%) 10.1 23.9 9.4 16.0 11.8 21.4 9.1 17.4 YOY GROWTH (%) 16.2 111.2 (54.9) 290.9 42.0 20.1 88.67 60.7 Tax 32 51 32 72 46 115 45 65 Net Profit 120 329 120 277 170 341 241 495 20.8 13.3 20.8 20.5 21.3 25.2 15.8 11.6

ANTIQUE STOCK BROKING LIMITED 2 June 2016 3 Quarterly segmental trend INR m Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 REVENUE FROM OPERATIONS Corporate 14 149 19 58 8 90 7 174 Energy (Power) 81 95 23 11 52 109 16 9 EPC (Construction) 1,424 1,509 1,582 2,167 1,779 2,017 3,128 3,218 Total 1,518 1,753 1,624 2,236 1,839 2,216 3,151 3,402 EBIT Corporate 14 150 19 58 8 90 7 174 Energy (Power) 32 46 (25) (17) 8 78 (16) (48) EPC (Construction) 148 230 199 347 229 322 327 548 Total 194 426 193 388 245 489 318 675 EBIT margin (%) Corporate 100 100 100 100 100 100 100 100 Energy (Power) 40 49 (109) (156) 15 71 (101) (541) EPC (Construction) 10 15 13 16 13 16 10 17 SOTP Valuation Basis Equity Value (INR mn) INR/Sh EPC Business PE @ 18x 32,111 562 Wind Assets DCF 5,738 101 Tranmission assets DCF 1,028 18 Target Price 681

ANTIQUE STOCK BROKING LIMITED 2 June 2016 4 Financials Profit and loss account (INRm) Net Revenue 7,085 7,939 10,972 13,574 15,724 Op. Expenses 5,159 5,859 8,759 10,600 12,468 EBITDA 1,926 2,080 2,213 2,974 3,256 Depreciation 667 603 495 510 529 EBIT 1,259 1,477 1,718 2,464 2,727 Other income 120 202 375 360 391 Interest Exp. 454 431 443 320 280 Extra Ordinary Items -gain/(loss) - 1 (244) - - Reported PBT 925 1,247 1,894 2,504 2,838 Tax 38 186 487 582 692 Reported PAT 887 1,062 1,163 1,922 2,146 Net Profit 887 1,061 1,407 1,922 2,146 Adjusted PAT 887 1,062 1,163 1,922 2,146 Adjusted EPS (INR) 15.3 18.4 20.3 33.7 37.6 Balance sheet (INRm) Share Capital Reserves & Surplus 8,371 9,147 10,145 11,774 13,626 Networth 8,371 9,147 10,145 11,774 13,626 Debt 6,077 5,405 4,083 4,526 4,001 Minority Interest 193 199 - - - Net deferred Tax liabilities 9 7 8 8 8 Capital Employed 14,650 14,758 14,236 16,307 17,635 Gross Fixed Assets 13,404 13,526 12,019 11,163 11,183 Accumulated Depreciation 2,711 3,314 3,809 4,319 4,847 Capital work in progress 36 36 36 36 36 Net Fixed Assets 10,729 10,247 8,246 6,880 6,372 Goodwill Investments 1,870 1,347 1,547 1,619 1,619 Non Current Investments 1,870 1,347 1,547 1,619 1,619 Current Assets, Loans & Adv. 3,900 5,219 8,744 10,789 12,949 Inventory 118 64 379 367 403 Debtors 2,060 3,449 4,963 5,800 7,000 Cash & Bank balance 481 247 1,116 3,089 3,914 Loans & advances and others 1,240 1,459 2,286 1,533 1,633 Current Liabilities & Prov. 1,848 2,058 4,300 2,981 3,305 Liabilities 1,800 1,902 4,119 2,981 3,305 Provisions 48 155 181 - - Net Current Assets 2,051 3,162 4,444 7,807 9,644 Application of Funds 14,650 14,757 14,236 16,307 17,635 Per share data No. of shares (m) 57 57 57 57 57 Diluted no. of shares (m) 57 57 57 57 57 BVPS (INR) 146.6 160.2 177.7 206.2 238.7 CEPS (INR) 27.2 29.2 29.0 42.6 46.9 DPS (INR) 1.8 1.5 1.7 1.9 2.0 Cash flow statement (INRm) PBT 925 1,248 1,650 2,504 2,838 Depreciation & amortisation 667 603 495 510 529 Interest expense 454 431 443 320 280 (Inc)/Dec in working capital 839 (1,113) (1,281) (282) (1,012) Tax paid 38 186 487 582 692 Other operating Cash Flow (474) (821) (1,588) (1,524) (1,774) CF from operating activities 2,449 535 206 2,110 1,552 Capital expenditure (330) (122) 1,507 855 (20) Inc/(Dec) in investments (1,224) 522 (199) (73) - Add: Interest/Div.Income Received 120 202 375 360 391 CF from investing activities (1,434) 603 1,682 1,143 371 Inc/(Dec) in share capital (23) (33) (69) - - Inc/(Dec) in debt (600) (672) (1,322) 443 (525) Dividend Paid (176) (235) (294) (294) (294) Others (454) (431) (443) (320) (280) CF from financing activities (1,252) (1,372) (2,127) (171) (1,099) Net cash flow (237) (234) (239) 3,082 824 Opening balance 718 481 247 8 3,090 Closing balance 481 247 8 3,090 3,915 Growth indicators (%) Revenue(%) 1.2 12.1 38.2 23.7 15.8 EBITDA(%) -19.3 8.0 6.4 34.4 9.5 Adj PAT(%) -27.6 19.8 9.5 65.3 11.7 Adj EPS(%) -27.3 20.0 10.5 65.5 11.7 Valuation (x) P/E 35.2 29.3 26.5 16.0 14.4 P/BV 3.7 3.4 3.0 2.6 2.3 EV/EBITDA 18.8 17.2 15.7 11.5 9.7 EV/Sales 510.8 450.4 315.9 252.2 201.9 Dividend Yield (%) 0.3 0.3 0.3 0.4 0.4 Financial ratios RoE (%) 11.0 12.1 12.1 17.5 16.9 RoCE (%) 9.4 11.4 14.4 18.5 18.4 Asset/T.O (x) 0.5 0.6 0.8 1.0 1.1 Net Debt/Equity (x) 0.73 0.59 0.40 0.38 0.29 EBIT/Interest (x) 3.0 3.9 4.7 8.8 11.1 Margin (%) EBITDA Margin(%) 27.2 26.2 20.2 21.9 20.7 EBIT Margin(%) 17.8 18.6 15.7 18.2 17.3 PAT Margin(%) 12.5 13.4 10.6 14.2 13.6 Source: Company Antique

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