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TD Power Systems Ltd IPO Review (Apply)

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.

Utilisation of Issue Proceeds

  • To finance the expansion of manufacturing plant in Dabaspet, Bangalore - Rs 94.6 Cr
  • To fund working capital requirement of company - Rs 40 Cr
  • To repay debt - Rs 30 Cr
  • To construct project office in Bangalore - Rs 28.9 Cr

Risk Factors

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.


  • Diversified Revenue Steam
    TDPS operates under three divisions. First is the manufacturing division under which company manufactures AC Generators with output capacity upto 52 MW which contributes 37% of the total income for FY11. Second is the projects division under which it executes ‘Turbine Generators' island projects for steam turbine power plants which has a revenue share of 19% and the third is the EPC division for power plants with capacity from 52 MW to 150 MW comprising installation and commissioning of Boiler Terminal Generator which contribute 44% to the total income of the company.
  • Decent Order Book
    The company's current order book is Rs 1,095 Cr which is 1.3 times its FY11 revenue. Out of which, orders worth Rs 379 Cr is for generators, Rs 531 Cr for EPC and Rs 183 Cr for projects. Net sales grew at a CAGR of 20.3% in the last three years to Rs 863 Cr in FY11. Net profit grew at CAGR of 18% to Rs 57 Cr during the same period.
  • Healthy Margins
    The company's EBITDA margin improved to 12% in FY11 from 11% in the previous year mainly due to improvement in profitability in projects division and increase in income share of manufacturing division. TD Power System has robust return ratios with a 33% return on capital employed and a RoE of 30%
  • Stable current ratio
    The liquidity position of the company is comfortable with stable current ratio on the back of largely stable operating cycle and comfortable average fund based capacity utilization of 64% for FY11.
  • Comfortable Leverage
    The company's debt equity is quite comfortable with 0.5:1 on a pre issue basis. Post issue the company will be almost debt free as it will be retiring debt of Rs 30 Cr with the issue proceeds. It has a cash of Rs 208 Cr on its books as of FY11 which translates to Rs62/share.

Conclusion / Investment Strategy

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.


Reviewer recommends Subscribing to the issue.

Review By MLR Securities Private Ltd on August 25, 2011