Tecpro Systems

Tecpro Systems is entering the capital market on 23^rd September 10, with a public issue of 75.50 lakh equity shares of Rs. 10 each, in the price band of Rs. 340 to Rs. 355 per share. Of this, fresh issue is for 62.50 lakh shares and offer for sale is for 13 lakh equity shares.

The company is an established material handling company, providing turnkey solutions in material and ash handling and has recently entered into balance of part (BoP) and EPC contracts. Due to this, it is largely catering to core sectors, like Power, Steel and Cement sectors, with each order of a reasonably big value. The company has recently bagged an order, as BoP project, of Rs. 993 crores, from Chhatisgarh State Power Generation Company, for its 500 MW thermal power plant, coming up at Korba. Though this award of order has been challenged by its competitor, but the same has been struck down by the Chhattisgarh High Court. The company has total orders of Rs. 2,312 crores, on hand, as at 31^st July 2010. However, a concern on some of these orders, is due to its fixed price or lump sum turnkey basis, which may see margin contraction in the event of increase in the raw material prices.

However, the company has been posting good sets of financials, over the last 3 years. For FY10, on consolidated basis, the total income was at Rs. 1,485 crores with PAT at Rs. 109 crores, resulting in an EPS of Rs. 24.65, on equity base of Rs. 44.22 crores. Net worth as on 31-03-10 was at Rs. 339 crores with debt of Rs. 485 crores. However, the debtors of the company are placed quite high at Rs. 917 crores, which represents for about 7.50 months of sales. Maybe, to tide over this, the sole object of the issue is to mobilise funds for the working capital requirements.

The business segment of the company has immense potential to grow ahead, in view of huge capacity addition seen in the power sector in 11^th Five Year Plan (ending on 31-03-2012) and 12^th Five Year plan. Infact, BoP contract, will be a big segment for the company to grow, as evident from one order of Rs. 993 crores having bagged from Chhattisgarh State Power for 500 MW thermal power project. This works out to a value of close to Rs. 2 crore per MW, of a power project.

If we take the upper price band of Rs. 355 per share, share is issued at a PE of about 14.50 times, on historic earnings, as EPS for FY10 was at Rs. 24.65. In view of expected growth in the financial performance of the company, same is likely to reduce. The existing peers, listed on the secondary market are ruling at an average PE of close to 20 times.

Considering this, it is advised to subscribe the issue, even at the upper price band of Rs. 355 per share. This is likely to give listing gains, but one would be better off, to hold it for 6-12 months.