Buy This Engineering & Construction Company Stock For 32% Upside: ICICI Direct

ICICI Direct has signalled a 'buy' on the scrip of Techno Electric & Engineering Company Ltd. for a target price of Rs. 332 as against the current market price of Rs. 251.5, implying return to the tune of 32 percent for potential investors in the stock.

Techno Electric Q2FY22 results:

The company has logged 193 bps increase YoY in margins which came in at 31 percent, offsetting just 6.4 percent YoY revenue growth at Rs 2.7bn. Because of covid, "EPC revenue reported flat YoY growth of Rs. 2.2 billion in Q2FY22 and was below expectations. EPC margins contracted 220bps YoY to 18.3%. Energy segment booked healthy 42% YoY revenue growth to Rs481mn. The management guided for Rs12bn of revenue from EPC segment for FY22E with a
margin of 15%", said the report.

Strong order intake outlook:

In the first half of the Fy22, the company's order book totalled to Rs. 5.7 billion. The company's order book is seen to expand going forward in H2FY22 and the management forecasts for order intake worth Rs. 20 billion, of which Rs. 12 billion order will be by FGD, Rs5 billion from transmission and Rs.2 billion from
smart meters.

Rationale for a ‘Buy' on Techno Electric:

ICICI Direct maintains BUY on the scrip of Techno Electric on healthy cashflow with cash and equivalents of Rs.8 billion, and benign valuation. "Despite challenges, the company is confident of maintaining margins at 15%. Given healthy growth outlook
and cashflow, we maintain BUY with revised SoTP-based target price of Rs332. We believe the foray into data centre business will be positive in the long run as it gives an avenue to utilise the wind power efficiently and provides the company a foothold in a promising growth segment. Using the SoTP methodology, we value the standalone EPC business at Rs211 (20x FY23E earnings), discounted cashflow from wind
assets at Rs.44, transmission assets at Rs.10 per share and cash and equivalents at Rs. 66 per share", says the brokerage.

Disclaimer:

The stock has been picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.