The Techno Electric & Engineering Ltd is a Kolkata based niche player in the engineering, procurement and construction (EPC) segment in the power sector. The transmission and distribution sector should see a significant improvement over the next few years on the back of a large pipeline of tenders expected from PowerGrid and other State Electricity Boards (SEBs), thereby increasing the emphasis on local sourcing. Government’s focus on funding and reforms like UDAY make Techno Electric a preferred vendor. The company has got huge orders to the extent of Rs 1500 crore from PowerGrid during the last one year, thereby adding to the total order book of over Rs 3,000 crore. The EPC segment contributes around 92% of the overall business revenue and it is looking forward to a growth period of at least 30% compounded annual growth rate (CAGR) in the near future. Techno had made a strategic diversification by entering the wind business with a 200 megawatt capacity. The management has now made a conscious decision to exit from this sector and stick to their core competence of being an EPC contractor and have thus sold the 50 megawatt capacity project for Rs 215 crore last year. Now the balance asset has turned out to be a money spinner for the company, with a generation of 90 million units as against 40 million units of last year. This should impact the bottom line positively for the current financial year. In spite of excellent profits, the company is proposing to sell the balance 150 megawatt wind business at a valuation of Rs 850 crore in the near future. Techno Electric has been distributing consistent dividends for the last many years and the policy of the management is to reward shareholders by paying a minimum 25% of the profits as tax free dividends. Even after paying huge dividends every year, Techno Electric has Rs 300 crore in its balance sheet, which should keep the company well funded to participate in the tariff based competitive bidding projects.
Many analysts are quite bullish on the power equipment space and particularly Techno Electric as it does not own any fixed asset in the balance sheet but is a pure service EPC player. With an unmatched working capital management, lean cost structure and bidding discipline the company is one of the best players in this segment. Recently, Techno Electric has announced an attractive bonus issue of one equity share for every one held, along with a final dividend of 100% for which the record date is next month. The stock currently trades at Rs 590 on the Indian stock exchanges and long term portfolio investors can expect a 60% price appreciation from this scrip over the next 12-18 months’ time frame.
Recovery in monsoon and positive cues from global markets helped benchmark index Sensex to rise smartly during the week to close up 709 points to settle at the 27,836 level, while the Nifty rose 218 points to close at 8,541. While Q1FY17 quarterly numbers have been good for TCS, Reliance Industries and L&T, market men will be keenly watching the announcement of the RBI Governor next week and the smooth passage of the GST Bill in the coming monsoon session of Parliament. Equity markets are expected to trade in the positive terrain next week in spite of disappointing results from the bell weather tech giant Infosys.