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RESULTS REVIEW 3QFY17 13 FEB 2017

Techno Electric & Engineering


NEUTRAL
INDUSTRY CAPITAL GOODS Expensive valuations
CMP (as on 13 Feb 2017) Rs 374 Techno Electrics (TEEC) 3QFY17 result was in line to NEUTRAL with a SOTP based TP of Rs 388/share
with our estimates as subdued execution in its T&D (20x Dec-18E P/E for EPC business).
Target Price Rs 388
segment (+4% YoY) was offset by better margins,
Nifty 8,805
both in T&D (15.1%, +360bps YoY) and Wind (EBIT of Highlights of the quarter
Sensex 28,352
Rs 130mn vs. EBIT loss of Rs 87mn YoY). Improved TEEC received LOA for a PPP project in the North-
KEY STOCK DATA grid availability in Tamil Nadu led to profitability in East (JV with Kalpataru Power) worth ~Rs 12bn.
Bloomberg /Reuters TEEC IN the Wind business. The order book remained With a lower substation component of ~Rs 2.5bn,
No. of Shares (mn) 114 stagnant at Rs 23bn. However, given the bid TEEC would have 26% equity share in the JV.
MCap (Rs bn) / ($ mn) 43 / 637 deadlines, the mgmt expects better order inflows in
Order inflows for 9mFY17 at ~Rs 8.5 bn have been
6m avg traded value (Rs mn) 31 the next 3-6 months. subdued for TEEC. However, the company has bid
STOCK PERFORMANCE (%) for orders worth Rs 30bn and is already L1 for Rs
Grid expansion/stabilisation projects would continue
52 Week high / low Rs 384 / 209 5bn worth of orders. Consequently, the mgmt
to drive investments in the Power T&D space,
3M 6M 12M
especially in the wake of higher renewable capacity expects order inflows to pick up over the next two
Absolute (%) 24.2 10.7 53.8 quarters, especially from the states.
addition. PWGRs annual capex is expected to be flat
Relative (%) 20.2 9.7 35.8 at Rs 270-300bn, though increasing the proportion of TEEC continues to focus on the sale of wind assets
SHAREHOLDING PATTERN (%) substation orders will augur well for TEEC. Growth (33MW sold in 3QFY17). Better grid availability
Promoters 57.98 would be further driven by increased investments by (over 90%) in Tamil Nadu has led to a substantial
FIs & Local MFs 15.48 state utilities. However, we see valuations (21.5x improvement in valuations for wind assets.
FPIs 8.20 FY18E core T&D EPS) as very steep, which restricts Near-term outlook: Expect the stock to be range-
Public & Others 18.34 meaningful upsides from current levels. Downgrade bound given steep valuations. NEUTRAL.
Source : BSE Financial Summary - Consolidated
(Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%) FY15 FY16 FY17E FY18E FY19E
Net Sales 3,563 3,167 12 3,676 (3) 7,939 10,972 13,901 16,303 18,730
Pawan Parakh, CFA EBITDA 751 403 86 1,115 (33) 2,080 2,213 3,233 3,433 3,770
pawan.parakh@hdfcsec.com APAT 406 309 31 701 (42) 1,051 1,228 2,078 2,408 2,727
+91-22-6171-7314 Diluted EPS (Rs) 3.6 2.7 31 6.1 (42) 9.2 12.3 18.2 21.1 23.9
P/E (x) 33.3 24.8 16.9 14.5 12.8
Ashutosh Mehta, ACA EV / EBITDA (x) 22.6 20.7 12.9 11.8 10.3
ashutosh.mehta@hdfcsec.com RoE (%) 12.3 13.0 19.5 19.7 19.3
+91-22-3078-8241 Source: Company, HDFC sec Inst Research
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
TECHNO ELECTRIC & ENGINEERING: RESULTS REVIEW 3QFY17

Quarterly Financials - Consolidated


(Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%)
Net Sales 3,563 3,167 12 3,676 (3)
Revenue grew 12% YoY on the Material Expenses 2,560 2,537 2,269
back of strong growth in Wind Employee Expenses 76 82 100
Energy (685% YoY). T&D Other Operating Expenses 176 144 192
business witnessed subdued EBITDA 751 403 86 1,115 (33)
growth of 4% YoY. Interest Cost 80 121 126
Depreciation 133 117 133
Other Income 52 161 61
PBT 590 326 81 918 (36)
Tax 185 45 200
Reported PAT 405 281 44 718 (44)
E/o inc/(loss) 3 (13) 5
Minority Interest (4) (15) 12
APAT 406 309 31 701 (42)
Source: Company, HDFC sec Inst Research

Margin Analysis - Consolidated


EBTIDA margins expanded
3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%)
~830bps YoY to 21.1% led by
Material Expenses as % of Net Sales 71.8 80.1 -826 61.7 1014
improvement in gross margins
Employee Expenses as % of Net Sales 2.1 2.6 -46 2.7 -59
Other Operating Expenses as % of Net Sales 4.9 4.6 37 5.2 -28
EBITDA Margin (%) 21.1 12.7 834 30.3 -926
Net Profit Margin (%) 11.4 8.9 251 19.5 -816
Tax Rate (%) 31.2 14.4 1676 21.8 943
Source: Company, HDFC sec Inst Research

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TECHNO ELECTRIC & ENGINEERING: RESULTS REVIEW 3QFY17

Segmental Quarterly Performance - Consolidated


(Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%)
Higher grid availability (over Segmental Gross Revenues
90%) in Tamil Nadu has EPC 3,258 3,128 4 2,968 10
resulted in positive EBIT for Wind Energy 304 39 685 708 (57)
Wind Energy (Rs 130mn in Corporate 49 174 56
3QFY17 vs. loss of Rs 87mn in Total 3,611 3,341 8 3,733 (3)
3QFY16) Segmental EBIT
EPC 491 360 36 452 9
Wind Energy 130 -87 NM 534 (76)
Corporate 49 174 44
Total 670 447 50 1,030 (35)
Segmental EBIT Margins YoY (bps) QoQ (bps)
EPC 15.1 11.5 355.0 15.2 (15.1)
Wind Energy 42.8 (225.9) 26,873.6 75.4 (3,264.0)
Source: Company, HDFC sec Inst Research

EPC Business Revenue and EBIT Margin Trajectory Wind Energy Revenue and EBIT Margin Trajectory
EPC Revenue EBIT Margin - RHS Wind Revenue EBIT Margin - RHS
Rs mn % Rs mn %
3,500 18.0 800 100.0
Grid expansion/stabilisation 16.0 700 50.0
3,000
projects would continue to 14.0 600 -
2,500
drive investments in Power 12.0 500 (50.0)
2,000
T&D space 10.0
400 (100.0)
1,500 8.0
300 (150.0)
6.0
1,000 200 (200.0)
4.0
500 2.0 100 (250.0)
0 0.0 - (300.0)

1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17

Source : Company, HDFC sec Inst Research Source : Company, HDFC sec Inst Research

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TECHNO ELECTRIC & ENGINEERING: RESULTS REVIEW 3QFY17

Change In Estimates
Previous estimates Revised estimates % change
(Rs mn)
FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E
Revenues (Rs mn) 14,222 17,048 19,574 13,901 16,303 18,730 -2.3% -4.4% -4.3%
EBITDA (Rs mn) 2,952 3,300 3,614 3,233 3,433 3,770 9.5% 4.0% 4.3%
EBITDA margin (%) 21% 19% 18% 23% 21% 20%
APAT (Rs mn) 1,820 2,200 2,505 2,078 2,408 2,727 14.2% 9.5% 8.9%
Net margin (%) 13% 13% 13% 15% 15% 15%
Source: Company, HDFC sec Inst Research

Key Assumptions - Consolidated


INR mn FY15 FY16 FY17E FY18E FY19E
Order Inflow 14,931 15,893 19,071 20,978 23,076
YoY (%) 93.8 6.4 20.0 10.0 10.0
We expect 10% growth in Revenue 7,939 10,972 13,901 16,303 18,730
order inflows for FY18E/FY19E EPC 6,681 10,143 12,437 15,093 17,520
led by higher proportion of Wind Energy 1,258 829 1,464 1,210 1,210
substation orders from PWGR EBITDA 2,080 2,213 3,233 3,433 3,770
and increased investment by EBITDA Margins (%) 26.2 20.2 23.3 21.1 20.1
state utilities PAT 1,051 1,410 2,078 2,408 2,727
Net Margin (%) 13.2 12.9 14.9 14.8 14.6

Capex 91 -2,424 -1,727 250 250


Debt 5,649 5,122 3,998 3,077 2,304
NWC (Ex-cash) as % of sales 39.8 39.8 29.6 29.6 29.6
Source: Company, HDFC sec Inst Research

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TECHNO ELECTRIC & ENGINEERING: RESULTS REVIEW 3QFY17

SOTP Valuation
Business head Parameter Value (Rs mn) Value (Rs/sh)
Standalone business 35,304 321
T&D EPC business 20x Dec-18E P/E 34,811 309
Wind projects capacity FCFF @ 11% WACC 493 4
C&CE 1x 834 7
Tranmission projects 897 8
Jhajjar FCFE @ 14% CoE 733 7
Patran FCFE @ 14% CoE 164 1
Simran Wind FCFF @ 11% WACC 6,641 59
Target price 388
Source: Company, HDFC sec Inst Research

Peer Valuation
MCap CMP TP EPS (Rs/sh) P/E (x) EV/EBITDA (x) ROE (%)
Company Rating
(Rs bn) (Rs) (Rs) FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E
Larsen & Toubro ^ 1,397 1500 BUY 1,625 64.8 69.2 69.8 18.0 16.8 16.7 17.2 15.7 13.9 13.1 12.8 11.9
Cummins India * 242 874 BUY 1005 27.3 30.6 34.4 32.0 28.6 25.4 29.0 25.5 22.4 22.8 23.3 23.6
Voltas 112 340 BUY 351 12.4 14.5 16.6 27.3 23.4 20.5 20.0 16.5 13.8 16.2 16.8 17.1
Suzlon 108 18 BUY 24 0.9 1.2 1.5 20.7 15.1 12.0 10.2 9.1 8.3 NA NA NA
Engineers India * 102 152 BUY 178 5.9 6.2 8.0 25.9 24.4 19.0 21.1 18.7 13.1 14.4 14.5 18.0
Thermax 102 858 SELL 770 26.3 27.8 31.8 32.6 30.9 27.0 22.9 20.1 16.9 12.8 12.4 13.0
Carborundum Universal 49 260 BUY 340 8.9 11.5 13.6 29.1 22.5 19.1 13.9 12.0 10.3 13.4 15.4 15.9
Kalpataru Power * ^ 45 290 BUY 363 17.2 18.5 21.3 13.1 12.2 10.6 9.3 8.5 7.5 11.1 10.8 11.2
KEC International 44 169 BUY 179 10.2 11.1 12.7 16.6 15.3 13.3 8.7 8.1 7.3 16.1 15.2 15.3
Techno Electric ^ 43 374 NEU 388 18.2 21.1 23.9 16.9 14.5 12.8 12.9 11.8 10.3 19.5 19.7 19.3
Triveni Turbine 42 127 BUY 148 4.0 4.5 5.1 32.1 28.4 25.0 22.7 19.7 16.9 39.0 34.5 31.1
Crompton Greaves ^ 42 67 BUY 82 -1.2 1.6 1.6 NA 35.2 34.1 12.6 11.1 10.2 -1.7 2.2 2.3
Inox Wind 40 182 BUY 298 21.4 24.9 25.8 8.5 7.3 7.0 5.6 4.7 4.4 22.8 22.0 19.8
Sanghvi Movers * 10 238 BUY 325 21.8 25.7 27.6 10.9 9.3 8.6 4.5 4.2 3.6 12.0 12.7 12.2
*Note Represents SA numbers ^ P/E adjusted for value of Subs /JV's / non-core businesses
Source: Company, HDFC sec Inst Research

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TECHNO ELECTRIC & ENGINEERING: RESULTS REVIEW 3QFY17

Income Statement - Consolidated Balance Sheet - Consolidated


(Rs mn) FY15 FY16 FY17E FY18E FY19E (Rs mn) FY15 FY16 FY17E FY18E FY19E
Net Revenues 7,939 10,972 13,901 16,303 18,730 SOURCES OF FUNDS
Growth (%) 12.1 38.2 26.7 17.3 14.9 Share Capital 228 228 228 228 228
Material Expenses 5,022 7,816 9,535 11,527 13,415 Reserves 8,919 9,917 11,341 13,095 15,169
Employee Expenses 274 302 331 390 455 TOTAL SHAREHOLDERS
9,147 10,145 11,569 13,324 15,397
SG&A Expenses 563 642 802 953 1,089 FUNDS
Total Expenses 5,859 8,759 10,668 12,870 14,960 Minority Interest 199 0 12 9 36
EBITDA 2,080 2,213 3,233 3,433 3,770 Long Term Debt 3,967 3,068 2,602 2,082 1,665
EBITDA Margin (%) 26.2 20.2 23.3 21.1 20.1 Short Term Debt 1,682 2,054 1,395 995 638
EBITDA Growth (%) 8.0 6.4 46.1 6.2 9.8 TOTAL DEBT 5,649 5,122 3,998 3,077 2,304
Depreciation 603 495 523 434 449 Net Deferred Taxes 7 8 8 8 8
EBIT 1,477 1,718 2,710 2,999 3,321 Long Term Provisions &
185 98 0 0 0
Other Income (Including EO Others
202 619 300 311 323 TOTAL SOURCES OF FUNDS 15,187 15,373 15,586 16,418 17,745
Items)
Interest 431 443 418 309 208 APPLICATION OF FUNDS
PBT 1,248 1,894 2,592 3,002 3,436 Net Block 10,209 8,246 5,996 5,812 5,613
Tax (Incl Deferred) 185 486 502 596 683 CWIP 38 0 0 0 0
RPAT 1,051 1,410 2,078 2,408 2,727 Goodwill 0 0 0 0 0
Minority Interest 12 (2) 12 (2) 27 Investments 380 623 629 629 629
EO (Loss) / Profit (Net Of Tax) 0 182 0 0 0 LT Loans & Advances 367 171 430 504 580
APAT 1,051 1,228 2,078 2,408 2,727 Total Non-current Assets 10,995 9,040 7,055 6,946 6,822
APAT Growth (%) 20 17 69 16 13 Inventories 63 379 190 223 257
Adjusted EPS (Rs) 9.2 12.3 18.2 21.1 23.9 Debtors 3,449 4,963 4,951 5,806 6,671
EPS Growth (%) 20.1 34.2 47.4 15.9 13.2 Other Current Assets 1,093 2,115 2,625 3,078 3,537
Source: Company, HDFC sec Inst Research Cash & Equivalents 1,215 2,040 4,839 5,143 5,949
TOTAL CURRENT ASSETS 5,820 9,497 12,606 14,251 16,413
Creditors 1,491 2,997 3,809 4,467 5,131
Other Current Liabilities &
137 166 267 313 359
Provns
TOTAL CURRENT LIABILITIES 1,627 3,164 4,075 4,779 5,491
NET CURRENT ASSETS 4,193 6,333 8,531 9,472 10,923
TOTAL APPLICATION OF
15,187 15,373 15,586 16,418 17,745
FUNDS
Source: Company, HDFC sec Inst Research

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TECHNO ELECTRIC & ENGINEERING: RESULTS REVIEW 3QFY17

Cash Flow - Consolidated Key Ratios - Consolidated


(Rs mn) FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19E
Reported PBT 1,248 1,894 2,592 3,002 3,436 PROFITABILITY %
Non-operating & EO items (202) (619) (300) (311) (323) GPM 36.7 28.8 31.4 29.3 28.4
Interest Expenses 431 443 418 309 208 EBITDA margin 26.2 20.2 23.3 21.1 20.1
Depreciation 603 495 523 434 449 APAT margin 13.2 11.2 14.9 14.8 14.6
Working capital change (1,590) (1,206) 245 (712) (720) RoE 12.3 13.0 19.5 19.7 19.3
Tax Paid (185) (486) (502) (596) (683) Core RoCE (RoIC) 9.5 9.7 19.1 23.2 24.4
Other operating items (84) (1,217) 0 0 0 RoCE 9.3 10.2 15.6 16.6 16.9
OPERATING CASH FLOW (a) 221 (696) 2,975 2,125 2,368 EFFICIENCY
Capex (91) 2,424 1,727 (250) (250) Tax Rate (%) 14.8 25.7 19.4 19.8 19.9
Free Cash Flow 131 1,728 4,702 1,875 2,118 Fixed Asset Turnover (x) 0.8 1.3 2.3 2.8 3.3
Investments 4 (243) (7) 0 0 Inventory (days) 2.9 12.6 5.0 5.0 5.0
Non-operating Income 202 619 300 311 323 Debtors (days) 158.6 165.1 130.0 130.0 130.0
INVESTING CASH FLOW (b) 116 2,800 2,020 61 73 Other Current Assets (days) 50.3 70.4 68.9 68.9 68.9
Debt Issuance/(Repaid) (427) (527) (1,125) (920) (773) Payables (days) 68.5 99.7 100.0 100.0 100.0
Interest (431) (443) (418) (309) (208) Other Current Liab & Provns (days) 6.3 5.5 7.0 7.0 7.0
FCFE (728) 758 3,160 646 1,137 Cash Conversion Cycle (days) 136.9 142.8 96.9 96.9 96.9
Share Capital Issuance 0 0 0 0 0 Debt/EBITDA (x) 2.7 2.3 1.2 0.9 0.6
Minority Interest 0 0 0 0 0 Net D/E (x) 0.5 0.3 (0.1) (0.2) (0.2)
Dividend (230) (309) (654) (654) (654) Interest Coverage (x) 3.4 3.9 6.5 9.7 16.0
FINANCING CASH FLOW (c) (1,089) (1,279) (2,196) (1,883) (1,635) PER SHARE DATA (Rs)
NET CASH FLOW (a+b+c) (752) 825 2,799 304 806 EPS 9.2 12.3 18.2 21.1 23.9
Closing Cash & Equivalents 1,215 2,040 4,839 5,143 5,949 CEPS 14.5 15.1 22.8 24.9 27.8
Source: Company, HDFC sec Inst Research Dividend 2.0 2.5 4.9 4.9 4.9
Book Value 80.1 88.8 101.3 116.7 134.8
VALUATION
P/E (x) 33.3 24.8 16.9 14.5 12.8
P/BV (x) 4.7 4.2 3.7 3.2 2.8
EV/EBITDA (x) 22.6 20.7 12.9 11.8 10.3
EV/Revenues (x) 5.9 4.2 3.0 2.5 2.1
OCF/EV (%) 0.5 (1.5) 7.1 5.2 6.1
FCF/EV (%) 0.3 3.8 11.2 4.6 5.4
FCFE/Mkt Cap (%) (1.5) 1.7 7.6 1.6 2.9
Dividend yield (%) 0.5 0.7 1.3 1.3 1.3
Source: Company, HDFC sec Inst Research

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TECHNO ELECTRIC & ENGINEERING: RESULTS REVIEW 3QFY17

RECOMMENDATION HISTORY
Techno Electric TP Date CMP Reco Target
400
13-May-16 275 BUY 303
350 31-May-16 274 BUY 303
300
9-Aug-16 339 NEU 339
21-Nov-16 295 BUY 371
250
13-Feb-17 374 NEU 388
200

150
Rating Definitions
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Aug-16
Apr-16

Jan-17
Feb-16

Jul-16

Sep-16

Feb-17
Nov-16
Jun-16
May-16

Dec-16
Mar-16

Oct-16

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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TECHNO ELECTRIC & ENGINEERING: RESULTS REVIEW 3QFY17

Disclosure:
We, Pawan Parakh, CFA and Ashutosh Mehta, ACA, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our
views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in
this report.
Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No

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