Techno Electric: Q2 Concall Summary

Q2 Concall Summary

• Order book as on 30th September 2016 stands at Rs.2,500 crores, which includes our L1 position in 765 kV Substation Package at Raigarh, Indore and Itarsi and the package value is about Rs.150 crores.
• For PGCIL, the ratio of investment between line and substation has undergone change from 80:20 to 65:35.
• In Wind segment the related challenges have eased, we are witnessing improvement in grid availability in State of Tamil Nadu and the overall wind flow has been positive.
• Revenue from EPC almost jumped by 47% from Rs.202 crores to Rs.297 crores. Consolidated revenue for the quarter also grew by 34% to Rs.368 crores against Rs.253 crores achieved during the same quarter of the previous year.
• Operating profit for the EPC segment for the quarter stood at Rs.45.88 crores as against Rs.33 crores, showing a jump of 38.56%. Operating profit margin for the quarter stood at 15.46%.
• The PAT on standalone basis for the quarter stood at Rs.44.79 crores as against Rs.34.07 crores last year, showing a growth of 31.46%. On consolidated basis, the PAT has jumped by 58% for the quarter at Rs.70 crores against Rs.44.5 crores.
• Able to manage the receivables within 100-days cycle which is one of the best in the industry.
• Outlook is very positive. States are now coming more ahead of the Power Grid also in building their own networks particularly the states having more of renewable power with them as well as some transmission networks with the other states. Seeing a strong momentum in the State of MP, Rajasthan, Chhattisgarh, Andhra, Telengana, Tamil Nadu, all are becoming fairly active.
• There is no impact on margins with more orders from state electricity board
• Payments are received directly from the funding agencies like REC/PFC/ADB
• Domonetization has not adversely impacted operations. On the contrary, it has helped. Construction material cost is now 10% to 15% lower.
• Consolidated debt is 300cr (275 cr in Simran and 25cr in Techno). Practically, short term debt free (5 cr)
• Cash balance is 225 cr
• Expect PAT margin over consolidated top line to be around 14.5-15% this year as against 11-11.5%

Stock Idea - PNC Infra

SECTOR BACKGROUND
Awarding activity in road sector has picked up pace in the past two years and is expected to remain firm in the next 2-3 years. In FY16, the government awarded 10000 km of road projects and in the current financial year, it targets to award over 25000 km or Rs 3 trillion of road projects. This trend is expected to continue in the coming years.

COMPANY BACKGROUND
•    PNC Infra Ltd (PNC) is a north-based EPC/BOT contractor
•    Strong order book visibility: PNC has an order book of ~ Rs 5100 crores (2.5x FY16 EPC revenues). Further, PNC has won Rs 1374 crores worth of orders won from April 2016 till date, financial closures of which are expected to be achieved by October 2016. 
•    Strong execution track record: PNC has a proven track record of early completion of projects in a sector marred by inordinate delays. It has the distinction of being among the
first few to receive an early completion bonus from NHAI.
•    Multiple operating efficiencies: PNC’s four pronged strategy:

    a.    conservative bidding
    b.    operating in a core geographic cluster
    c.    ‘No subcontracting’ policy in critical construction activity and
    d.    a large equipment bank, have enabled the company expand its EBITDA margin 500 bps during FY13-FY16 to ~17%.

•    In FY16, PNC enjoyed a 11% market share of the NHAI’s Rs 48,100 crore EPC order book, second only to the infrastructure behemoth, L&T (12% share).
•    PNC has executed ~75-80% of its road projects in UP, Jharkhand, Bihar and Rajasthan. These states have a robust pipeline of road EPC projects over 2016-17 – 4 states alone account for 36% of the 6631 kms of road projects that NHAI intends to award in FY16.
•    The govt is now acquiring 80-90% of the land before announcing the date for commencement for construction
•    Gathered enough qualification credentials to independently bid for a single project to a tune of over Rs. 3,000
•    Currently co is executing 16 projects in roads & airport runway sector
•    Currently we have 7 operational BOT projects of which 5 are Road BOT projects, 1 is Road OMT project and 1 is Industrial Development project
•    Our consolidated net worth as on June 30, 2016 is Rs. 1,364 crores whereas total debt is Rs. 1,722 crores. Net debt to equity comes at consolidated basis comes at 1.13 times.
•    There are 17 new EPC orders worth Rs 15,000 cr that will be up for bidding
•    Toll Revenues - Gwalior - Etawah MP Highway is Rs. 15.5 crores; Kanpur - Ayodhya is Rs. 69.8 crores; Kanpur Highway is Rs. 24.7 crores and Bareilly - Almora was Rs. 9.6 crores; Ghaziabad - Aligarh is 37 - 38 lakhs per day
 •    PNC has long history in the roads sector with over 15 years of experience in executing NHAI projects. PNC has track record of timely and before schedule completion of projects and received early completion bonus.
•    PNC is focused on the northern region and is expected to be a strong contender for grabbing future opportunity in road construction from poll bound states like UP and Punjab.
•    PNC has robust current order book of Rs 64.7 bn and further targets to add another ~Rs 40 bn of orders in the rest of the year based on robust pipeline of orders specifically in road space. This gives high revenue growth visibility for the next 2-3 years.



Understanding the Hybrid Model of Road Development
Funding - The government will contribute 40% of the project cost in the first five years through annual payments (annuity); developer to raise remaining 60% through debt or equity. Semi-annual annuity payments will be paid to the developer for the balance 60% of the project cost

Disbursement - Government's 40% contribution will be disbursed in accordance with the project completion milestones (24%, 40%, 60%, 75%, and 90%)

Revenue Collection -
i) Responsibility of NHAI
ii) The Government / NHAI will collect the toll and pay the developer annuity payments over 15 years along with interest thereon at bank rate + 3%. The developer will also receive O&M payments bi-annually along with annuity payments.
iii) All project payments will be inflation indexed.

RISKS & CONCERNS
•    Slowdown in road sector
•    Aggressive bidding of projects
•    Inflows of large size BOT projects





FINANCIALS
Nos are from www.screener.in













 


Disclosure: I am invested in the stock and my views are likely to be biased. Please do your own due diligence or consult a SEBI registered investment analyst.