Despite new orders, margin drop a concern for BS TransComm

BS TransComm, a manufacturer of towers for the telecommunication and power sectors, has received new orders worth Rs 244 cr. These orders have been awarded to its power business for projects related to EPC, turnkey and tower supply contracts.

The new orders include an EPC contract for a 765 KV S/C transmission line for Raichur Sholapur Transmission Company, to be executed by July 2013. The 2nd order is from Chhattisgarh State Power Transmission Company to set up 2 substations in Raipur. This order is to be executed in next 12 months. The 3rd order is from the Power Grid Corporation (PGCIL) to supply a tower package of 765 KV S/C.

The company has recently forayed into the power sector, where it supplies towers, transmission lines, turnkey projects etc. Its client list includes companies like Sterlite Industries, GMR Infra, PGCIL, Tata BP Solar, etc. In 2010, the company entered the stock market with an IPO, which was mainly aimed towards the extension of its tower capacity. This new capacity was expected to be commissioned by Sept 2011, but has been delayed till Dec 2011. The scrip's performance on the bourses has been very weak. From its listing to date, the scrip has lost 68% in its value.

In recent results, the company has disappointed with its performance. Though it has seen strong growth in its topline, it has dropped its EBITDA margins by 300 bps in the first half of this fiscal. Its net profits also decreased by 5% to Rs 26 cr in the first half. This drop has largely occurred due to higher input costs. The company has a total debt of Rs 234 cr, and has seen a 36% rise in interest expenses in its half yearly results. Its promoters have also pledged 30% of the shares according to the shareholding pattern for the Sept 2011 quarter, as filed with the BSE. Its major business is in the telecom sector, which is currently amidst some bad news due to the scams associated with it. This has also created a somewhat negative sentiment in the market about this sector.

In the last fiscal, BS TransComm bagged a project for the Sholapur to Raichur stretch of power lines, to transmit power from the Krishnapatnam Ultra Mega Power Project (UMPP). We, at DSIJ, however, have serious doubts of the viability of this transmission project. Reliance Power is developing this UMPP, and has stopped work at this project due to financing issues. We don’t see BS TransComm making good cash flows from this project for the next 4-5 years.

When we tried to find out the current order book of the company, the management remained unavailable despite several attempts. From the BSE filings, we found that that the current order is the only one that the company has received in one year’s time, and this is a matter of concern. With such a weak performance, this may not be a good investment proposition.