Stock Pick From Electric Equipment Sector

Choice Scrip is a fundamentally strong stock pick that is expected to give returns within a 1 year horizon. The recommendation is based on a fundamental analysis of the company. Hence DSIJ has selected a stock with good fundamental base.

Here Is Why

The company has strong technology implementation modules such as STATCOM

The power ministry has already declared an ambitious target to award Rs 1 lakh crore worth of power transmission projects through the tariff-based competitive bidding (TBCB) route. The companies in the transmission & distribution segment are likely to see better times in near term. The government has created green corridors in Rajasthan, Gujarat and Tamil Nadu in the first phase and will do so in Maharashtra, Andhra Pradesh and Madhya Pradesh in the second phase. Considering improvements across macro economic factors, stocks like Techno Electric & Engineering (TEEL) are going to have traction in future.

TEEL is one of the leading EPC service providers across the entire power sector value chain - generation, transmission and distribution. The company has presence in three different business areas viz. transmission and distribution EPC (84 per cent of revenue FY15); transmission projects under PPP model (negligible contribution currently); and renewable energy generation (16 per cent of revenue FY15), with a cumulative capacity of 162MW (45 MW being sold recently).

TEEL is the first to establish STATCOM (static compensator) which is niche of the renewable transmission sector. The company is installing an Rs 268 crore solution in collaboration with Rongxin at Solapur, Satna and Aurangabad – the first time such an advanced solution is being attempted in India.

TEEL has order book stood at Rs 2025 crore as on FY15. Out of total order book 25 per cent came from niche segment. The company has just entered into various international markets, where it is currently executing one project. Its strategy is to initially bid for projects in territories with relatively easy access (Bangladesh and East Africa) and then entering other geographies in South Asia and the Middle East.

On financial front, TEEL’s consolidated revenue increased by 25.1 per cent to Rs 317 crore in Q3FY16 on quarterly basis. The company’s EBITDA reduced by 55.3 per cent to Rs 37 crore in Q3FY16 as compared to previous quarter. Meanwhile, it divested windfarm subsidiary to focus on core business. TEEL’s EBITDA margin stood at 11.7 per cent as of Q3FY16.The company’s net profit down by 40.7 per cent Q-o-Q basis at Rs.27.72 crore, due to one of the exceptional items related to forex and service tax.

Considering nine month financials, TEEL reported revenue of Rs 771 crore with a growth of 34.65 per cent in 9MFY16 as compareed to same period in previous financial year. However, the company’s EBITDA declined by 2.71 per cent to Rs 165 crore in 9MFY16 on yearly basis as 60.92 per cent reduction in raw material expense during the current financial year. Its net profit increased by 36.17 per cent to Rs 112 crore in 9MFY16 as compared to same period in previous fiscal year.

 On Segmental revenue front, TEEL earned 81.6 per cent from Transmission segment, 14.3 per cent from Distribution segment and remaining 4.1 per cent from Generation segment during December 2015 quarter.

On Valuation front, TEEL is trading at (trailing twelve months) TTM PE multiple of 20.41x times which is higher as compared to industry PE multiple of 17.3x times. The company has book value worth Rs 178.61. Hence, we recommend a BUY.