Techno Electric - Powering Ahead

TECHNO ELECTRIC & ENGINEERING COMPANY LTD

The power sector is transforming with large investments in various govt initiatives. T&D is on focus as well as renewable energy sector. The next few years may see a thrust in this business.

T&D INDUSTRY

• India's energy consumption has nearly doubled since 2000

• Power demand in India is expected to grow from 120 GW to 315-335GW by 2017 - as per McKinsey study.
• Coal availability will increase with coal mines leases renewed and forest clearances granted. 10 mines are to be added by Mar 2016.
• The government is expecting an investment of about US$ 250 billion by 2020. Renewables are set to get US$ 100 billion, while the transmission and distribution segment will get US$ 50 billion, each. Another US$ 60-70 billion will be for power generation, including for restarting stalled projects and for new ones while US$ 5-6 billion is set aside for energy efficiency projects. Besides, US$ 20-25 billion investments would come for associated infrastructure required in replacement of old and out-dated equipments, among others.
• Key focus area is integration of renewable energy to the grid
• Discoms have an accumulated loss of 3.8 lakh crores and debt of 4.4 lakh crores (as of Mar 2015)
• UDAY scheme entails the state govts to take over the debt and future losses (in a staggered manner) from the Discoms
• Government plans to roll out green energy corridor’ project at an estimated cost of INR 43000 cr to facilitate the flow of renewable energy into the National Grid.

• Renewable power has been declared as a priority sector for bank lending from 2015

THE COMPANY

• Leaders in EPC contracting in power sector
• Spread across entire power sector value chain - generation and T&D
• Co's forte is 765KV substation projects besides distribution projects

 

• 215 cr is the sale proceed for 44.45 MW. 4.83 cr / MW sale price. 162.9MW of wind power capacity remaining.
• Promoter has 58% stake in the company
• Mutual funds hold 17.2% and FIIs 5.4%
• The co is involved with more than 50% of both NTPC and Power Grid's projects; it has relationships with 1500+ vendors
• One of the first few T&D contractors, who have teamed up with Chinese player Rongxin to participate in STATCOM projects. Have first mover advantage in STATCOM space in India.
• Govt plans to install 50 STATCOMs in the next 3-5 years with a total spend of 8000 cr.
• In 2013, the Patran transmission project was completed completely on supplier credit
• EPC division produces 92% of the revenues
• Co has a working capital cycle of 35 days vs 66-182 days of competitors
• The Ministry of Power has planned to provide electricity to 18,500 villages in three years under the Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY).
• A few Ultra Mega Power Projects of about 4,000 MW capacity each are in the offing
• Power Grid Corporation of India is to build sub transmission system of 220/132kV in 6 North East States at an estimated investment of Rs 15000 cr over a period of 3 years. Already bagged order to the tune of Rs 170 Crores to build 400 kV GIS substation at Assam under World Bank funded NER Power System Improvement Project.
• Got an order worth Rs 600 cr for substation package at Chittorgarh, Tuticorn, Ajmer and Bikaner associated with Green Energy Corridors: Inter-state Transmission Scheme (ISTS)
• Order book at end of Mar 2016 is 2,600 cr, 69% of which is from PGCIL
• Co has a zero penalty record resulting in realization of retention money within 6 months of project completion
• During 2015-16, around 28,000 ckm (circuit kilometre) of transmission lines were commissioned against 22,000 ckm last year. This is 118% of the annual target set and also the highest ever for a single year.

DISCLOSURE: I currently hold the stock.

Sagar Cement - Cyclical Upturn

Sagar Cement (SC) is likely to be one of the key beneficiaries of the huge development in Andhra and Telengana in the next few years.

Demand Scenario
* Amaravati, is planned over 217 sqkm and would require an investment of 4 lakh crores (ref: www.thehindu.com/opinion/op-ed/telangana-rising-amaravathi/article7271810.ece). Telangana already has over 24,000 cr of infrastructure projects under construction. The govt has cleared lift irrigation projects worth 35,000 cr.
* New high-speed rail line announced between Amaravati and Bengaluru
* New stable governments in TN & Kerala
* Huge investments planned in infrastructure projects like the proposed East Coast Economic Corridor, Dedicated Freight Corridor, Diamond Quadrilateral High Speed Rail and National Waterways.
* Decision to use cement instead of bitumen for a large number of big road projects

 Investment Plan of the Govt related to infrastructure:

Capacity at strategic locations:
3 MTPA of cement and 2.1 MTPA of clinker at Nalgonda, Andhra PradeshAcquired BMM Cements in Sep 2014 with 1 MT cement and 25MW captive power plant at Anantpur, AP at an EV/ton valuation of $87/ton

Sales is well spread geographically, tough majority comes from AP & Telangana.

BMM Cements had 3000 acres of land. In Dec 2015, BMM AP govt approved a 20 year mining lease for 1200 acres containing limestone reserves of 155 million tons. This provides raw material guarantee.
The company has setup rail siding to reduce transport cost. 20% of transport to move to rail thereby increasing operating margins.
The current capacity utilization is at 56% leaving ample scope for increasing utilization. BMM Cements also had a captive power plant of 25MW capacity. Access to captive power will also reduce operating cost. With the completion of the acquisition, SC will consolidate results from Q1FY17.

Financials:
The stock is available at a market cap of around 1200 cr at a PE of 23. The current replacement cost of cement is about 800 cr/mtpa

Risks
* Aggregate demand does not pick up due to delay in infrastructure spending or lack of turnaround in housing sector
* Adverse Govt policy related to price ,specially for low cost housing projects
* Spike in input costs

DISCLOSURE: I hold the stock and other cement stocks.