Technofab Engineering Review

[chetan]

Technofab Engineering, since its inception 38 years ago, has slowly made its mark in the EPC segment. It is still a comparatively small company having FY10 revenues of about 200 crores, but sales and net profit have increased by a CAGR of about 40% each over the last 5 years. Having prestigious clients such as BHEL, NTPC, LITL etc, the business model of the company is diversified across 6 segments, namely electrical, industrial infra, waste water management, nuclear, oil and gas and conventional power. The company has a healthy current order book of about 533 crores as on 31st March, 2010, average fundamentals, and a low risk business model.

The issue is also efficiently priced at a P/E of 9.08x times on the lower side and 9.87x times on the higher side of its FY10 EPS of Rs. 25.33, which we believe is at a discount to its peers in the industry

Net Issue   No. of shares(%)
QIB’s   1470000   49.1
NIP   441000   14.8
Retail   1029000   34.4
Employee   50000   1.7

Price Band (Rs)   230   240
Bid Lot   50 shares
Face Value   10
Opens on   29th June 2010
Closes on   2th July 2010

[chetan]

HSBC has a SUBSCRIBE RECOMMENDATION,

At the price band of Rs 230-240 per share, the offer is available at 12.6x – 13.2x its FY10 post diluted equity capital. The offer is fairly priced compared to its peers like Sunil Hitech Engineers, Shriam EPC, McNally Bharat Engineering Company and Hindustan Dorr Oliver which trade in the range of 12x – 26x their FY10 earnings. Given the current order book of Rs 5337.4 mn, the company provides growth visibility for more than 2 years. The expected order book of Rs 4000 mn provides added comfort with revenue visibility. The foray into water and waste water treatment and nuclear power signify the management execution capabilities and the higher probability to secure additional orders. We recommend Subscribe to the issue for investors with long term horizon.

[chetan]

BP Wealth has a SUBSCRIBE recommendation,

Standalone sale for FY 2010 was higher by 34% to Rs 200.37 crore and net profit was higher by 63% to Rs 19.09 crore. The company’s OPM in FY 2010 was 16.8%, which is high compared to other players in the industry who enjoy OPM of around 10‐12%. The standalone EPS for FY 2010 works out to Rs 18.2. The offer price band of Rs 230‐240 discounts the FY 2010 EPS by 12.6‐13.2 times. Looking at favorable sector dynamics and company’s performance in the past we recommend to subscribe for this issue.

[chetan]

Ventura Securities has a SUBSCRIBE recommendation with the following rating,

Strong growth in revenues and earnings over the last couple of years, low gearing, presence in lucrative segments such as nuclear power and
water management are the key positives for this company At the higher end of the price band i.e. at Rs 240, TEL is priced at an attractive P/E of 13.2 based on FY10 earnings and post IPO equity. Being a pure play on India’s infrastructure growth story & wide execution capabilities in diverse sectors, we recommend a SUBSCRIBE on the company for listing gains as well as for a medium to long term horizon.

[komal]

Motilal Oswal has a Subscribe to the IPO of technofab Engineering,

The company has a Rs. 5.3 billion order backlog as of 31st March 2010, which is equivalent to approximately 2.7 times FY10 revenues of Rs. 2 billion. This gives decent visibility of revenues as these orders are executable over the next 12-20 months. Also, the 41 projects in progress are spread over various segments of infrastructure such as conventional power, nuclear power, Rural electrification, Water and waste water treatment, Road and industrial infrastructure. giving comfort over sectoral concentration of revenues.

At the upper price band of Rs. 240 stock will trade at 13.2X FY10 EPS and 8.8x FY11 E EPS. We believe that there will be upside from the issue price for investors due to strong earnings growth and possible news flow on the orders front. We recommend subscribing to this IPO.

[komal]

HDFC Sec has the following recommendation on the IPO of Technofab Engineering,

TEL has strong revenue growth, improving margins and order book of Rs.5.3bn, which is 3.5 times of its 12 months ending March 2009 (FY09) (2.7 times its 12 months ending March 2010 (FY10) revenue). It reported strong revenue growth of 34% in FY10, 84% in FY09 and 33% in FY08, with the EBITDA margin improving to 16.8% in FY10 vs 14.5% in FY09. Despite increase in revenue in FY10, TEL kept its working capital requirements at a low level. Gammon India Limited (GIL) acquired a 15.7% stake in TEL in FY07, and the association has benefited TEL by enabling it to bid for and secure projects for which it was not previously eligible due to net worth and/or revenue criteria.

The issue is offered at 12.6-13.1 times its FY10 EPS on fully diluted basis. Though not cheap, it offers scope for appreciation over the medium term.