Salasar Techno Engineering Ltd

Transcription

1 STOCK POINTER Salasar Techno Engineering Ltd BUY Target Price 247 IPO Fix Price 108 FY20E8.6xPE Index Details Sensex 31,747 Nifty 9,786 Industry Scrip Details Engineering Solutions BVPS ( ) 96.2 O/s Shares (Cr) 0.9 Fix Price ( ) 108 Div Yield (%) Nil FVPS ( ) 10 Shareholding Pattern Shareholders Post % Promoters 75.0 Public 25.0 Total Salasar Techno Engineering Ltd (Salasar) is a pure EPC company, offering engineering and technical solutions with operations diversified across the segments of telecom, T&D and rural electrification, solar, smart city solutions and fabricated steel and cold formed structures. We expect its revenues to grow at a CAGR of 14.2% from Rs crore to Rs. 573 crore by FY20. EBITDA and PAT are expected to grow at a CAGR of 21.2% and 23.2% to Rs crore and Rs crore, respectively, over the same period. ROCE and ROE are also expected to improve by 193 bps and 232 bps to 21.7% and 16.9%, respectively. We are extremely enthused by the fact that the company has no long term debt (short term borrowings are for working capital requirements) and has added marquee clients (Central Organization and PGCIL) to its impressive client list. Further we do not expect significant capex, at least over the forecast period, given the fact that its existing capacity is adequate to cater to growth until then. We initiate with a BUY for a price target of Rs. 247 (8.6x FY20 target PE) representing an upside of 129% (from the offering price of Rs. 108) over the next 21 months. Key Financials ( in Cr) Y/E Net Adj. EPS RoCE EBITDA PAT RoE (%) Mar Revenue EPS Growth (%) (%) P/E(x) E E E EV/EBIDTA - 1 of 12 - Wednesday 12 th July, 2017

2 Company Background: Salasar provides customized steel fabrication and infrastructure solutions. The company with almost 10 years of experience working in over 30 countries, has pioneered the design, manufacture and installation of technologically advanced and resilient steel structures with full customizability. It has a diverse product portfolio catering to various industries. Business verticals of Salasar Source: Company, Ventura Research - 2 of 12- Wednesday 12 th July, 2017

3 Key investment highlights: Timely capex to cater to strong growth Salasar s first production facility was established in FY07, with an installed monthly capacity of 1500MT. Subsequently, in FY09 the second unit was setup with a monthly installed capacity of MT (50,000 MT per annum). In FY17 the capacity utilization peaked out at 90.7% and, to meet the growing demand, the company doubled its production capacity to 100,000 MT at a cost of Rs. 20 crore. This capacity addition was at its wholly owned subsidiary Salasar Stainless Limited. Details of Salasar s installed capacity and utilisation 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 - In MT Installed Capacity Production Utilization 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Strong product portfolio across segments helps diversify revenue Salasar has a strong product portfolio enabling it to cater to its various marquee customers present across diverse industries such as telecom, engineering, infrastructure, etc. Salasar, through its production prowess designs, engineers and installs structures as per the customer s requirements. Salasar s diverse product portfolio includes the following: Telecommunication Towers have several applications in different sectors, such as mobile, internet, television, navigation and radio signal transmissions. These are structures which house the dishes and receivers required for wireless communication and data transfers. The company, since its inception, has manufactured and erected around 10,000 towers of various designs- Anugular, Tubular, Hybrid Ground Based Towers (GBT) and Roof Top Towers- for various leading telecom companies in India. - 3 of 12- Wednesday 12 th July, 2017

4 Further, to enhance its product profile, the company has collaborated with M/s Ramboll Telecom, Denmark (the world leader in telecom/high masts). The tower designs of Ramboll are lighter in weight and cost 20% less than the conventional angular towers. Transmission towers and substation structures are tall structures used to support an overhead power line. They are used in high-voltage AC and DC systems and come in a wide variety of shapes and sizes. The four major categories of transmission towers include suspension, terminal, tension and transportation. Solar Module Mounting structures are used to fix solar panels on surfaces like roofs, building facades and on the ground. These mounting systems generally enable retrofitting of solar panels on roofs or as part of the structure of the building. Feeder Segregation and Rural Electrification: The company also carries out rural electrification projects under the government through route mapping, feeder segregation and installation of transmission lines and substations. Lighting Poles are used as sources of light on the edges of roads or walkways to provide visibility. Robust order book provides visibility Salasar has executed various projects for various clients, including Rajasthan Rajya Vidyut Prasaran Nigam Limited and NTPC Ltd, among others. Further, currently projects of U.P. Power Transmission Corporation Ltd, Acme Cleantech Solution Pvt Ltd, Bharti Hexacom Ltd, Renew Solar Energy Pvt Ltd, Mahindra Susten Pvt Ltd, Reliance Jio Infocom Ltd, Paschimanchal Vidyut Vtran Nigam Ltd and many more are under process and executable over the next few years. Source: Company, Ventura Research Major Ongoing Projects Sr no. Project Name Description of Project Contract Price (Rs. in crore) Unbilled Amt (Rs. in crore) 1 U.P Power Transmission Supply and erection of Corporation Ltd Transmission line towers 2 Paschimanchal Vidyut Vitran Nigam Ltd Rural Electrification work including 11 KV Feeder Segregation, Sansad Adarsh Gram Yojana and other works on partial turnkey basis Paschimanchal Vidyut Vitran Nigam Ltd Rural Electrification work including 11 KV Feeder Segregation, Sansad Adarsh Gram Yojana and other works on partial turnkey basis of 12- Wednesday 12 th July, 2017

5 Marquee client additions augurs well for future business growth Other than the above mentioned ongoing projects, Salasar has also received its maiden order of Rs crore from Central Organisation for track electrification, which augurs well for further railway orders. The company has also received approved vendor status from PGCIL. These two marquee additions should enable the company to experience strong revenue growth, given the fact that simply getting approval as a registered vendor in itself is a huge entry barrier. Experienced management team The company has an experienced and motivated management team with a proven track record. A brief on the management is as follows:- Name Designation Experience Mr. Gyanendra Promoter Worked with Public Kumar Agarwal Works Department Mr. Alok Kumar Chairman & Managing Director mainly responsible for purchase and finance More than 40 years of experience in trading and fabrication of steel Mr. Shalabh Agarwal Ms. Tripti Gupta Mr. Shashank Agarwal Mr. Anil Jain Promoter & Whole-time Director Promoter & Whole-time Director mainly responsible for corporate planning & HR Jt. Managing Director responsible for sales & marketing of towers and mounting structures Non-Executive & Independent Director & iron More than 18 years of experience in sugar industry, trading and manufacturing of iron & steel More than 5 years of experience in business development and policy making Has been the president since 2014 More than 30 years of experience of professional practice Mr. Amit Jain Independent Director Varied experience in leading organization such as Bharti Airtel, Videocon, Venus Capital Mr. Sanjay Chandak Mr. Vijay Jain Non-Executive & Independent Director Non-Executive & Independent Director More than 25 years experience in profession of Chartered Accountancy Varied experience in leading organizations. - 5 of 12- Wednesday 12 th July, 2017

6 Strong revenue growth on the cards We expect revenues to grow at a CAGR of 14.2% over FY17-20 to Rs 573 crore from Rs crore reported in FY17. Revenue from the telecom sector is expected to grow at a tepid CAGR of 3%, however, the real growth is expected from the transmission and solar segments, which are estimated to grow at a CAGR of 24.9% and 21.7%, respectively. The other segment mainly consists of smart poles, which is an upcoming product that is equipped with LED lights, CCTV Cameras, pollution sensors, Wi-Fi routers, distress buttons, etc. These are being produced mainly to cater to the demand from smart cities. EBITDA and PAT margins are expected to grow at a CAGR of 21.2% to Rs.73.2 crore and 23.2% to Rs crore over the same period, respectively. Revenue to grow at 14.2% CAGR ROE and ROCE 700 In Rs. Cr 25% In % % % % % % Transmission Solar Telecom Others ROE ROCE EBIDTA and EBITDA margins PAT and PAT margins 80 In Rs. Cr In % 14% 45 In Rs. Cr In % 8% % 10% 8% 6% 4% 2% 0% % 6% 5% 4% 3% 2% 1% 0% EBITDA EBITDA Margin PAT PAT Margin - 6 of 12- Wednesday 12 th July, 2017

7 Zero long term debt, however working capital requirement to rise In Q1FY18 the company repaid its term loan of Rs. 7.1 crore. The working capital is expected to increase from Rs crore to Rs. 154 crore. This sharp increase is a result of us considering conservatively longer working cycle estimates than those reported by the company. Debt to Equity Debt to EBITDA No of times Debt/Equity Interest coverage ratio 8 No of times Interest Coverage Ratio - 7 of 12- Wednesday 12 th July, 2017

8 SWOT analysis STRENGTHS WEAKNESSES Business Agreement with Ramboll Steady financial performance Optimum Galvanizing Capacity Customer Centric Approach Application pending under Enforcement Department, Securities Exchange Board of India ( SEBI ) for settlement of adjudication proceedings filed by the Company, any liability on account of said proceedings may have an adverse effect on business and financial position. Robust order book and excellent prequalification credentials Operational Excellence Experienced management and promoters Foreign exchange risks, primarily in exports, could adversely affect the operations. Top five clients contribute approximately % of revenues for the period ended September 30, Any loss of business from one or more of them may adversely affect revenues and profitability. Contingent liabilities, which if materialize, may adversely affect the financial position of the Company. OPPORTUNIES THREAT Govt. of India initiative to create 100 smart cities provides a significant opportunity. Increasing installed capacity and expanding the product portfolio Expanding design and engineering capabilities Changes in Govt. policies and budgetary allocations for investments in power & telecom sector may have an adverse impact. Possibility of new entrants in business and predatory pricing may have an adverse impact. Targeting new customer accounts and expanding existing ones Developing camouflaging capabilities for monopoles - 8 of 12- Wednesday 12 th July, 2017

9 Valuations We initiate coverage on Salasar Techno Engineering Ltd with a BUY. We have assigned a 30% discount to its peers (KEC International & Kalpataru Power Transmission) median multiple of 12.3 to its FY20E Adjusted EPS of Rs. 28.8, with a price objective of Rs. 247, representing potential upside of 129% from the fixed offer price of Rs At the CMP, the stock is trading at 3.8x its FY20E Adjusted EPS of Rs Company valuation Particulars Rs EPS-FY20E 28.8 Peers PE 12.3 Less: Discount 30% Company PE multiple 8.6 Offer price Target Price Potential upside 129% Source: Company, Ventura Research - 9 of 12- Wednesday 12 th July, 2017

10 Peer Comparison (Rs in crore) Source: Company, Reuters, Ventura Research - 10 of 12- Wednesday 12 th July, 2017

11 Financials & Projections Y/E March, Fig in ` Cr FY17 FY18E FY19E FY20E Y/E March, Fig in ` Cr FY17 FY18E FY19E FY20E Profit & Loss Statement Per Share Data (Rs) Net Sales Adj. EPS % Chg Cash EPS Total Expenditure DPS % Chg Book Value EBDITA Capital, Liquidity, Returns Ratio EBDITA Margin % Debt / Equity (x) Other Income Current Ratio (x) PBDIT ROE (%) Depreciation ROCE (%) Interest Dividend Yield (%) Exceptional items Valuation Ratio (x) PBT P/E Tax Provisions P/BV Reported PAT EV/Sales Minority Interest EV/EBIDTA PAT Efficiency Ratio (x) PAT Margin (%) Inventory (days) Other opr Exp / Sales (%) Debtors (days) Tax Rate (%) Creditors (days) Balance Sheet Cash Flow Statement Share Capital Profit Before Tax Reserves & Surplus Depreciation Minority Interest Working Capital Changes Long Term Borrowings Others Deferred Tax Liability Operating Cash Flow Other Non Current Liabilities Capital Expenditure Total Liabilities Other Investment Activities Gross Block Cash Flow from Investing Less: Acc. Depreciation Changes in Share Capital Net Block Changes in Borrowings Capital Work in Progress Dividend and Interest Non Current Investments Cash Flow from Financing Net Current Assets Net Change in Cash Long term Loans & Advances Opening Cash Balance Total Assets Closing Cash Balance of 12- Wednesday 12 th July, 2017

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