This Small Stock Jumped 21.04% In 3 Months, ICICI Securities Assigns Buy For 55% Robust Gains

ICICI Securities maintains a "Buy" on Techno Electric & Engineering Limited (TEEC) for a 55% potential upside from its current level with a target price of Rs 490 apiece. TEEC is one of India's most important power-infrastructure companies. With a market capitalisation of Rs 3,509.37 crore, it is a small-cap power infrastructure company.

Stock Outlook & Returns on investment

The stock is currently trading at Rs 318.90 apiece on NSE, down 0.13% from its previous close. Its 52-week high is Rs 348.30 apiece recorded on 21 December 2022, and its 52-week low is Rs 224 apiece recorded on 7 March 2022, respectively. The stock debuted on the exchange on 4 December 2018.

It has given 10.27% positive return since its listing date. The stock surged 4.11% in the past 1 month, and 21.04% in the past 3 months, respectively. It has given 28.29% in the past 1 year. In the past 3 years, it has given 12.61% positive return.

India data centre market at a nascent stage

Indian data centre market is still at a nascent stage compared with some of the developed nations such as USA, United Kingdom, Germany and Japan. India has around 138 data centres as of March'22 compared with 2,653 in USA, 451 in United Kingdom, 442 in Germany and 199 in Japan. India's data centre capacity is set to double by FY25 to 1,700-1,800MW from 870MW currently (link) with an investment of Rs400bn on the back of rising data uptake, digitalisation and localisation, coupled with the launch of 5G services. The demand for data centres, led by data and cloud storage, has been growing at an exponential level on the back of corporates embracing advanced technologies and digital infrastructure on one hand and increasing use of smart devices by individuals on the other. We expect TEEC to leverage its EPC capability and gain significant market share in EPC opportunity in the data centre space.

Chennai Data Centre – key details

Techno has planned to develop hyper-density data centre of 250MW by FY30 across India, at SPV level along with a JV partner. This would be starting with 36MW in Chennai, followed by Delhi NCR, Maharashtra, Kolkata, Hyderabad and Bihar. For Chennai, the announced capex is around Rs13bn (Rs367mn/MW facility load), funded through a mix of debt and equity (60/40). The company has already purchased land and construction activities are on. As per the management, all regulatory approvals are in place and discussions with foreign JV partner are at an advanced stage. The first phase (6MW) is expected to be commissioned by June-23/Sep-23 and subsequent phases are expected to be commissioned with a gap of 4-6 months. The power requirement of the data centre would be met by a mix of TEEC's wind power capacity and grid. Once fully commissioned, TEEC would exit from SPV and sell its complete stake to its JV partner.

Buy for a target price of Rs 490/share

We interacted with the management of Techno Electric and Engineering (TEEC) to take an update on the company's new initiative, its data centre business, and the long-term opportunities which the company foresees. TEEC has plans to develop ultra-scalable hyper-density data centres of 250MW by FY30 across India, starting with 36MW (capex of Rs13bn) in Chennai, followed by Delhi NCR, Maharashtra, Kolkata, Hyderabad and Bihar. Data centre market in India is expected to grow from ~870MW to 1,800MW by FY25 (link). With its data centre business, TEEC is expecting to leverage its in-house core competency in EPC and create a robust opportunity for executing third-party data centre projects. We expect the company to benefit with growth in order inflow led by expected data centre capex in the country. We remain positive on TEEC with its asset-light business model (EPC RoCE 60% in FY22), strong orderbook (OB) with 3.2x book/bill and strong balance sheet with cash of Rs12bn. We incorporate equity value of Chennai data centre (expected equity IRR of ~12%) and arrive at a revised SoTP-based TP of Rs490 (earlier: Rs461); maintain BUY on the stock.

Disclaimer

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.