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Review By MLR Securities Private Ltd on August 25, 2011
Issue Period: 24th Aug - 26th Aug
Price Band: INR 256-261
Issue Size: INR 227 Cr
Mcap: INR 846-863 Cr
Grading: CARE IPO Grade 4
BRLM: Enam, Antique, Equirus
Promoter: Nikhil Kumar, Hitoshi Matsuo, Mohib Khericha
Listing: BSE & NSE
TD Power Systems Ltd. manufactures AC Generators with output capacity in the range of 1 MW to 52 MW for prime movers such as steam turbines, gas turbines, hydro turbines, wind turbines, diesel and gas engines. In addition, TDPSL also undertakes power project business whereby it executes Turbine Generator (TG) projects and EPC projects. EPC business is undertaken by its subsidiary DF Power systems ltd.
TDPSL has manufactured a total of 1,337 generators with an aggregate output capacity of 10,767 MW of which 207 generators have been supplied to customers across 33 countries. The company's current manufacturing capacity is 360 generators pa which will expand to 600 generators pa by 2013. The company's customers are Balrampur Chini Mills Limited, Nava Bharat Ventures Limited, Chettinad Cement Corporation Limited, Shree Cements Limited, Vasavadatta Cements to name a few.
Nikhil Kumar is the joint managing director of the company since 2001. He has over 20 years of work experience in the manufacturing business of electrical rotating machines. He has worked in Kirloskar Electric Co. from 1990 to 2000 as a General Manager in charge of their Bangalore factory. He has completed his Bachelor of Engineering and has also studied General Management in Harvard Business School.
The company raised Rs 33 Cr from anchor investors at Rs 256/share. The investors include Smallcap World Fund Inc, IDFC Premier Equity Fund, American Fund Insurance Series, IDFC Investment Holdings, Ironwood Investment Holdings and Baring India Private Equity Fund.
Execution Risk: Company enters into contracts for their power project business which requires execution in specified time. Any delay in contract execution, delays in delivery of raw materials, components or equipment may adversely affect the power project business.
Revenue Concentration: The top ten customers contributed 76.6%, 68%, 43% of the consolidated net sales of the company for FY11, FY10 and FY09 respectively. While top 10 customers are not necessarily the same every year, these customers contribute a significant portion of the company's total income. Any change in preference of customers, loss of orders, cancellations can seriously dent company's profitability.
TDPSL is a market leader in the steam and hydro generators segment in India commanding a healthy RoE of 30% on a consolidated basis. Post issue the company will be almost debt free.
Though the valuations of 15‐15.3 times FY11 EPS are at a premium to its listed peer BHEL which is trading at a P/E of 14, we believe it justifies its strong fundamentals. We recommend investors subscribe to this issue at a lower price band of Rs 256 for a long term time frame.
Review By MLR Securities Private Ltd on August 25, 2011
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