TPRO, a specialized contractor, bids for work related to material handling and construction of power plants. We forecast EPS to grow 25% in FY11 and 50% next year underpinned by new contracts of Rs39bn this year. The IPO proceeds would help TPRO lower D/E to 0.4x from 0.9x and fund expansion through FY12. At IPO, price the stock is available at PER of 7.8x FY12F (40% below avg. sector PER). We rate the stock BUY on strong EPS growth and financial position. Our share TP of Rs544 is based on 12x PER.
FY11F revenue up 45%, FY12F up 35% Demand for TPRO’s services would remain strong since power firms are estimated to invest Rs50bn pa in power plants over the next few years. TPRO’s FY11F backlog will rise 90% to Rs38bn (2x FY11F revenue). Of this, 70% relates to work from power sector and the balance comprises material handling work from steel/cement sectors. The large backlog will support revenue growth of 45% for FY11 and 35% for FY12.
Gross margin up 80bp to 21.2% TPRO’s margin will rise due to increasing sales to power plants that have higher margin of 23% vs. 19% in material handling. The risk of volatile metal prices is limited as TPRO can pass on RM price increases to customers. The company includes price escalation clauses in its contracts. High‐margin work will lead to TPRO’s earnings growing 25% and 50% in FY11F and FY12F respectively.
D/E down to 0.4x from 0.9x on new share sale The company will raise Rs2.2bn from listing (EPS dilution of 14%). The proceeds will be used to reduce debt and fund expansion. Over the next 2 years, TPRO requires Rs1.7bn to meet the shortfall in opCF.
TP of Rs544 based on PER of 12x FY12F, 50% potential upside We recommend investors to SUBSCRIBE given strong earnings growth and low PER. Our discounted CF yields a value of Rs639/sh.
Tecpro Systems Ltd (Tecpro) is one of the leading material handling companies in India is entering the capital market with a public issue of 7,550,000 equity shares of Rs 10 each. The issue will comprise a fresh Issue of 6,250,000 equity shares and an offer for sale of 1,300,000 equity shares by the selling shareholder (Metmin Investments Holdings Ltd). The offer comprises a net offer to the public of 7,350,000 equity shares and an employee reservation portion of 200,000 equity shares for subscription by eligible employees. The price band is Rs. 340 to Rs. 355 per equity share of Rs 10 each.
Valuation and recommendation:
We value Tecpro’s stock at Rs. 390, by using the DCF method (WACC of 11.6% and terminal growth of 5%), which offers an upside potential of 15% over the lower end of the price band and 10% over the upper end of the price band. In comparison to its domestic peers’ (TRF Ltd, Elecon Engineering Co, Mcnally Bharat Engineering, and Sunil Hitech Engineering Ltd) average forward P/E of 10.9x for FY11E, Tecpro’s stock proposes a 5% discount with a forward average P/E of 10.4x for FY11E. The Company proposes an ROE of 36.8% for FY11E as compared to average peers’ set of 21.8% and commands a superior EBIDTA and Net profit margin of 14.4% and 7.6%, as compared to average peers’ set EBITDA and Net margin of 9.1% and 4.7%, respectively. Hence, we recommend investors to subscribe to this issue.
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September 23, 2010 11:33:53 PM
Top Contributor (600+ Posts, 100+ Likes)
Ye jo thode se hain paise kharch tum pe karun kaise?
Nifty is showing downtrend, market may crash anytime. 10 din paisa block, 15 din kismat jinko allotment mile. Jab ye IPO ke RHP aye the tan market 15000 pe tha ab 20000 hai. Agar fir 16 pahunch gaya tab subki lutiya doobegi.
Consolidated sales of the company for the fiscal ended March 31, 2010, were higher by 82% to Rs 1454.92 crore and net profit doubled to Rs 108.71 crore. The EPS on post-issue equity of Rs 50.47 crore was Rs 21.5. And at the offer price band of Rs 340-355 the PE works out to 15.8-16.5 times of its FY 2010 consolidated earnings. In contrast, McNally Bharat Engineering quotes at a PE of 15.5 times and TRF at 19.8 times its FY 2010 consolidated earnings. On the other hand BGR Energy Systems, powered by two of its 600 MW power plant EPC contracts, gets higher valuation with a PE of 28 times of its FY 2010 consolidated earnings.
Tecpro systems client list include all the big names as NTPC, Reliance, etc and with maximum no of orders for coal handling and ash handling . its a sure shot good investment
Hello boarders, I am a existing shareholder of State bank of mysore.. i plan to subscribe for rights issue for 2lacs..(issue pprice 540, cmp 920) is it worth applying..as i have never subscribed for any rights before