Techno Electric and Engineering Company
Viewpoint
A “wind” of change CMP
Techno Electric and Engineering Company Ltd (TEE) is one
of the leading players in the country providing balance of
plant (BoP) services for power plants. It is capable of
undertaking seven to eight packages out of a total 17 BoP
packages. The company also undertakes electrical system
contracts across generation, transmission and distribution
space of up to 765kv rating. TEE also provides tailored
power solutions for industries such as aluminium, steel,
chemicals and petrochemicals. The engineering,
procurement and construction (EPC) business of the
company contributed approximately 80% to its revenue
in FY2010. TEE’s current book stands at Rs1,200 crore,
which is 1.7x its FY2010 revenue.
We recently met the management of TEE. Here are the
key takeaways from the meeting.
Focus on wind energy
Of late, the company has been looking for an opportunity
to enter the power generation space. Since the thermal
space looks very crowded, the company has decided to
enter the wind energy business. In Q3FY2010, TEE acquired
two Suzlon group companies—Simran Wind Project and
Super Wind Project—having a combined wind power
generation capacity of 95MW in Tamil Nadu and Karnataka.
Current wind energy capacity at 95MW
Super Project Simran Wind Project Pvt Ltd
Capacity: 45WM Capacity: 50.45MW
Location: Karnataka (12MW) Location: Karnataka (6MW)
and Tamil Nadu (33MW) and Tamil Nadu (44.45MW)
30 turbines at three wind farms 41 turbines at five wind farms
PLF: 24% to 29% PLF: 23% to 29%
Contracted tariff: Contracted tariff:
`3.40 (Karnataka) and `2.90 to `3.39 (Tamil Nadu)
`3.39 (Tamil Nadu) and `3.40 (Karnataka)
Wind energy plans
TEE plans to expand its wind energy capacity to 300MW
by FY2012 and by 1,250MW by FY2017. Taking a step in
this direction, TEE recently announced the purchase of
202MW of wind assets for Rs1,149 crore from Suzlon:
106 turbines ranging from 1.5MW to 2.1MW each in
Tamil Nadu (phase 1)
Approximately 100MW to be commissioned by May 2011
(phase 1) and the rest by December 2011 (phase 2)
Further, TEE has agreed to purchase additional 300MW
from Suzlon during FY2013-14 on mutually agreed terms.
Funding for wind energy
The overall funding would be done in a debt-to-equity
ratio of about 70:30. The company is also currently looking
for equity dilution of approximately Rs200-300 crore.
BoP space—rising competition
TEE’s management has pointed to the growing competition
in the power EPC space. It says while earlier the success
ratio was 20% in BoP bids, now the ratio has gone down
to 10%. However, the growth guidance for the EPC business
remains robust at 15-18% for the next few years.
T&D space—plans to add one transmission line to its
portfolio annually
TEE recently won a transmission and development (T&D)
contract in consortium with Kalpataru Power Transmission
Ltd (KPTL) to design, build, finance, operate and transfer
a 400/1,500MVA transmission network at Jhajjar, Haryana.
The project would be carried out by a special purpose
vehicle (SPV), Jhajjar KT Transco Pvt Ltd, which is a 51:49
joint venture with KPTL. The project has already achieved
financial closure where term debt of Rs276 crore has been
secured at a total cost of Rs444 crore. The project is
scheduled to be completed in 14 months from the date
of the financial closure. The SPV will construct and
operate the line for the initial concession period of 25
years with the option of extension for another ten years.
Going slow on biomass
TEE is going slow on the biomass project as it feels that
the cost-benefit economics are currently looking
unfavourable. However, the company is actively looking
for a good acquisition target in the biomass space to run
the plant on a test basis.
Half-yearly results
In H1FY2011, TEE registered a growth of 18.4% in its
revenue with its margin expanding to 29.5%. The
performance was backed by the robust profitability of its
wind energy business. The company is currently having
cash of Rs16.7 crore and retention money receivable of
Rs96.3 crore. However, the other income is exceptionally
high compared to the investments and contributed close
to 20% of the profit before tax (PBT) in the first half of
FY2011. The management expects the other income
component to remain robust in the coming times also,
backed by robust yields earned on loans, advances and
investments.
Our view
Given the intensified competitive pressures in the BoP
business segment, the company is shifting its focus to
the renewable energy generation business as one of its
key growth areas in future. Though the capital expenditure
for its proposed foray in wind energy generation would
be supported by the internal accruals from the EPC
business and inflows in the annuity based T&D projects,
we suspect that the company would have to considerably
dilute equity as well to finance its wind energy expansion.
Also on the execution side, the company is not having
any experience and would have to scale up its manpower
resources in line with the increase in the scale of
operation. At the current market price, the stock trades
at 16.1x its FY2010 earnings per share and 14x FY2011
rough estimates, which is in line with that of the other
comparable engineering companies. We currently do not
have a rating on the stock.
