Stock To Buy: Company That Could Benefit From The Govt's Smart Metering Plans

Markets have gathered momentum over the last 2-days as tensions over the Russian invasion of Ukraine ease. Anand Rathi is bullish on the stock of Techno Electric and Engineering and believes that strong execution, and appealing valuations, make a strong case for a buy on the stock.

Revenue ahead of estimates

Techno Electric & Engineering Company Ltd is a power-infrastructure company. The company is engaged in Engineering, Procurement and Construction, asset ownership and operations and maintenance services in the three industry segments of generation, transmission and distribution.

According to Anand Rathi, Techno Electric's Q3 FY22 revenue was ahead of its own estimated due to pick up in execution, while profitability was affected due to higher raw material cost.

"It's EPC revenue was 46% higher y/y at Rs2.9bn (ARe: Rs2.2bn). EBITDA margin contracted to 14% (31.3% a year ago), affected by higher RM and freight cost. Q3 FY21's saw exceptional gain of Rs350m in wind power. Management expects strong order inflow from FGD, green energy corridor, smart meters and data centres. Based on the Q3 performance and management outlook, we have tweaked our estimates. We roll forward to FY24e. The stock continues to be attractive at 10x/9x FY23e/FY24e," the brokerage has said.

Execution picked up

According to Anand Rathi, the better execution pushed up Q3 revenue 22.5% y/y to Rs3bn (highest in last 14 quarters). However, higher raw material and freight costs squeezed the EBITDA margin to 14%. According to the brokerage, profit on sale of a transmission asset JV brought it Rs 1.1 bn, an exceptional gain. Order inflow for 9M FY22 was Rs 6 billion; the order backlog at end-Dec'21 was Rs 16 billion.

Bullish on government FGD, “smart” metering plans

"The government's intent to install 200m smart/prepaid meters by Mar'24 to curb discom losses would benefit the company in the near to medium term. For FGD, too, the government expects full implementation of 125GW by 2024. The bid pipeline of FGD orders would lead to good orders for the company. To address the strong opportunity in data centres in India, the company is setting up a 30MW data centre at Chennai, to be increased to 250-300 MW in coming years at several locations. It will also be building energy storage systems," Anand Rathi has said in its report.

Valuations

The brokerage's positive stance on the stock continues, with a robust long-term outlook. "We tweak our estimates considering higher raw material prices for a few more quarters and lower-than-expected orders in 9M FY22, which can impact execution. The stock trades at 10x/9x FY2 3e/FY24e EPS. We maintain our Buy rating on it with a slightly higher price of Rs338 (12x FY24e EPS), earlier Rs 335," it has said.

According to Anand Rathi, the key risks are lower-than-anticipated orders and execution. The stock of Techno Electric last traded at Rs 251 on the NSE.

Disclaimer

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.