CRISIL Research has come out with its report on Technofab Engineering . The research firm has initiated coverage on the company with a fundamental grade of 3/5 and assigned a valuation grade of 5/5, in its February 29, 2012 report.
Delhi-based EPC player Technofab Engineering Ltd (Technofab) has carved out a niche for itself in power, water, oil & gas and industrial infrastructure. It has a strong clientele and has been getting repeat orders from clients like NTPC , BHEL and NPCIL. A well-diversified order book of Rs 10.2 bn (2.8x TTM revenues), low gearing (due to IPO in June 2010) and low inventory days place Technofab on a strong footing in the industry. The company has also been focussing on overseas markets and has seen good traction in order flows from these markets. However, we believe this exposes it to logistic challenges. CRISIL Research assigns Technofab a fundamental grade of 3/5, indicating that its fundamentals are good relative to other listed securities in India.
Order book (2.8x TTM revenues) provides healthy revenue visibility
Technofab's current order book is Rs 10.2 bn (2.8x TTM revenues), which provides strong revenue visibility for the next 24-30 months. The order book has been boosted by strong order intake in the year till date, which has been particularly robust as it has received orders worth ~Rs 7.4 bn compared to ~Rs 4.5 bn in entire FY11. However, ~15% of the order book is slow/non-moving.
Varied order book limits concentration risk but overseas risk exists
Technofab's order book is well diversified across segments - power (45%), water (23%), oil & gas (14%), industrial infrastructure (14%) and electrical (4%). Also, ~50% of its current order book comprises overseas markets in Africa (Ghana, Mozambique, Ethiopia, Zambia, Kenya, and Malawi) and the Asia-Pacific region (Bangladesh and Fiji) which shields the company from a domestic slowdown. However, the company could face inherent political risks and logistical challenges.
Low gearing - one of the lowest in the industry
As of September 2011, Technofab's gearing was 0.2x, low compared to peers' average of 2.1x, following the IPO in July 2010. A comfortable balance sheet with low gearing provides ample room for Technofab to fund future growth without the need for equity dilution.
Revenues to grow at a three-year CAGR of 26%
We expect revenues to register a three-year CAGR of 26% to Rs 5.8 bn in FY14 driven by a strong order book. EBITDA margin is expected to increase marginally by 20 bps in FY13 to 13% and remain at a similar level in FY14. Adjusted PAT is expected to increase at a CAGR of 18% to Rs 419 mn in FY14. EPS is expected to increase from Rs 24.6 in FY11 to Rs 40.0 in FY14.
Valuations - current market price has strong upside
We have used the price-to-earnings (P/E) method to value Technofab and have assigned a multiple of 5x to FY14 earnings. Accordingly, we have arrived at a fair value of Rs 200 per share. At the current market price, we initiate coverage on Technofab with a valuation grade of 5/5.
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Source: Moneycontrol