Tecpro Systems Limited

Tecpro Systems Limited (TSL) provides turnkey solutions in material handling, ash handling, balance of plant ("BoP") and engineering, procurement and construction ("EPC") contracts. Over the years TSL has developed in-house capabilities for providing comprehensive solutions in material handling and ash handling systems. TSL has received the highest number of orders for coal handling plants during the Eleventh Five Year Plan (2007-2012), (Source: RHP, www.cea.nic.in). Leveraging on its capabilities in coal handling, ash handling and established project management track record, TSL has begun to focus on turnkey BoP contracts in thermal power generation sector

Investment Rationale  

Ø        Current order-book of INR 23.1bn, 1.6x its FY10 revenue on consolidated basis shows quick conversion of order-book to sales and growth outlook for core sector like, Coal, Steel, Power, and Cement etc remains positive over medium to long term. TSL has received the highest number of orders for coal handling plants during the Eleventh Five Year Plan

Ø        Strong project management expertise and established track record of project execution

Ø        Strong in-house design and manufacturing capabilities

Ø        TSL revenue has grown on year-on-year basis by 119.5%, 58.4% and 82.0%, for FY08, FY09 and FY10, respectively and growth outlook continues to remain positive

Concerns

Ø        One of the BoP order worth INR 9,930Mn (43% of the current order-book) is subject matter of apex court judgement. Any adverse decision against TSL in these proceedings could result in loss to the extent of expenses incurred but not recovered from client and significant reduction in its order-book.

Ø        Top 10 customers constituted ~65% of TSL’s income from operations for FY08-10. Dependency on few clients for most of its revenue exposes TSL to the risk of loss of client / revenue which could materially impact its future business.

Ø        TSL had negative cash flows for last five fiscal years

Valuation

At the upper price band of 355, TecPro Systems Ltd is offered at 14.2x its FY10 EPS of INR 25 and 13.6x at the lower band, while its peers are trading at 16x – 20x. Given the robust outlook for core infrastructure sectors like Power, Cement, Steel, Coal, lower valuation and higher Return on Networth when compared with its peers, TSL valuation remain attractive, recommend SUBSCRIBE.