Equipped to handle growth

Tecpro Systems is a company engaged in the manufacturing of material-handling equipment. It has a notable presence in the coal-handling and ash-handling segments. At its four manufacturing facilities in Bhiwadi (Rajasthan) and Bawal (Haryana), the company makes equipment for power, sugar, cement, port, steel and other industries. Prominent institutional investors AvigoCapital, Metmin Investments, Credit Suisse PE Asia and Macquarie Funds Management currently hold 35.66 per cent stake in the company.

Tecpro is offering 7.55 million shares -- 6.25 million through a fresh issue of shares and 1.3 million through a sale offer by Metmin, which currently holds 3.85 million shares in the company. The fresh issue of shares will help the company garner up to Rs 221-231 crore at a price of Rs 340-355 per share, which will be used to meet its working capital needs for the next couple of years.

Opportunities and risks
As per various studies and estimates, the power sector will require huge investments towards capacity additions by 2012 and even thereafter. Tecpro, which derived 80 per cent of its revenues from the power sector in 2009-10, is well poised to capitalise on these growth opportunities.
 

RACING AHEAD
In Rs crore	FY08	FY09	FY10
Sales	505	793	1,455
Ebitda (%)	13.7	12.2	15.5
Net profit	41	55	109
Source: Company RHP

 

ISSUE DETAILS
Price band (Rs)	340-355
Size (Rs cr)	256.7-268
Opened on	23-Sep
Closes on	28-Sep
Crisil grading	4/5

On the flip side though, the company has derived over 65 per cent of its revenues from its top 10 clients in the last three years, which reflects its high dependence on a few clients. It also operates on fixed-price or lump-sum turnkey projects, which do not have cost escalation clauses. That exposes it to fluctuations in the prices of key raw materials such as iron and steel, cement, bearings, etc. While this may impact its operating margins going forward, the risk of execution delays always exists given the nature of the business.

Strong visibility
Growth in Tecpro’s order book has been robust in the last two years. As on end-July 2010, it had an order book of Rs 2,310 crore, which is 1.6 times its total income of Rs 1,480 crore for 2009-10.

In addition to its core area of material handling, the company has forayed into the Balance of Plant (BoP) segment and is looking at entering the EPC segment, both of which would be an extension of its existing business and offer huge opportunities. It currently has one project from the Chattisgarh State Power Generating Company in the BoP segment and is aiming to adopt the consortium route for future projects.

It has formed a consortium with established companies such as Gammon India and VA Tech to bid for future BoP projects.

Valuations
Tecpro’s topline has grown at a compounded annual rate of 93 per cent, while the bottomline has grown 85 per cent during FY06-10. With its order book position at comfortable levels and growing, one can expect the company to report healthy growth in the coming years.

At the upper end of the price band at Rs 355 and assuming an earnings growth of 30 per cent in 2010-11, the PE works out to a reasonable 11.5 on the post-IPO equity capital. These valuations coupled with its plans to tap into the high growth segments of BoP and EPC make the offer attractive. Subscribe.