td power systems ltd - ipo note

8/4/2019 TD Power Systems Ltd - IPO Note

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Wealth Research, Unicon Financial Intermediaries Pvt. Ltd

Email: [email protected]

NG TERM INVESTMENT CALL

SUBSCRIBE24 August 2011

Company Report | IPO Note

TD Power (TDP) is a manufacturer of motors and AC generators with

capacities ranging from 1 – 52 MW. The company also executes TurbineGenerator island projects for steam turbine power plants with output

capacity up to 52 MW. TDP has also ventured into the business of EPC of

Boiler-Turbine Generator island projects and the balance of plant portion

for steam turbine power plants with output capacity from 52 to 150 MW.

Investment Rationale

Diversified Product Portfolio: The company has a diverse product range

which includes, steam turbine generators, horizontal hydro generators,

vertical hydro generators, diesel engine generators, wind turbine

generators, gas engine generators, gas turbine generators, high voltage

motors and generators for Geo Thermal and Solar thermal applications.TDP’s wide product portfolio provides it a strong competitive advantage,

thereby allowing it to cater a broad customer base.

Technology Ownership, Relationships and In-House Design Expertise:

TDP has a well established track record of successfully absorbing new

technologies for manufacturing generators and has entered into

arrangements with int’nal power equipment manufacturers such as

Siemens AG and Sicme Motori SrL. In 2007, it granted a limited license to

G.E., USA to manufacture generators using its design for Brazilian market.

Project Execution Capabilities for Power Project Business: From the

inception the company has completed a total of 94 projects with anaggregate output capacity of 1910.50 MW which includes projects executed

in India, Uganda, Kenya, Zambia and Philippines. The company has gained

significant experience and has established a track record and reputation for

efficient project management, execution and timely completion of projects.

State-of-the-Art Manufacturing Facilities and Cost Efficient Production:

TDP’s two manufacturing units are equipped with advanced machines and

tools and are ISO 9001:2008 compliant The company has been able to

provide competitively priced products through cost efficient production

and with the highest quality and technology standards which enables it to

receive new business from its existing and new customers.

Concerns

Significant % of Sales Derived from Sale of Steam Turbine Generators

Dependent on Technology Transfer Agreements

Outlook & Valuation

TDP’s business model is well diversified in terms of power equipment

manufacturing and EPC, which is an emerging business segment. It is the

leader in the captive power segment below 50MW segment and has no

direct peer in this space. However, the company’s size is very small

compared to its peers both in the domestic and the international

markets.Post issue, TDP’s price band suggests a P/E range of 14.9x – 15.2x

its FY11 EPS. On P/B front, the stock is priced at 2.0x – 2.1x its TTM Book

Value per share. We recommend Subscribe on the stock.

Issue Details

Issue Opens 24th AugIssue Closes 26th Aug

Price Band 256 – 261

Face Value 10

No of Equity 8.9 – 8.7.

Size of the Issue 2,270

IPO Grading CARE

IPO Grade 4/5

BRLMs

Enam Securities, Antique

Capital, Equirus Capital

Source: RHP, Unicon Research

Shareholding Pattern (%)

GroupPre

IPO

Post

IPO*

Promoters & Promoter Grp 89.45 65.93

Others 10.55 34.07Source: RHP, Unicon Research

Objects of the issue INR Mn

Expansion of Manufacturing Plant 946.4

Construction of Project Office 289.1

Debt Repayment 302.0

Working Capital 400.0

Others -

INR Mn

Financial Summary FY10 FY11

Income 738.2 864.0EBIDTA 71.8 89.4

PAT 43.5 56.7* Source: RHP, Unicon Research





Segment-wise Revenue FY11

Source: Company

Company Background

TD Power is a manufacturer of motors and AC generators with capacities ranging from 1 –

52 MW. These motors are used in steam turbines, gas turbines, hydro turbines, wind

turbines and diesel & gas engines. The company has so far manufactured 1,538 generators

with a combined output capacity of 12,657 MW, across clients in 34 countries.

The company also executes Turbine Generator (TG) island projects for steam turbine power

plants with output capacity up to 52 MW. The scope of work of the TG island projects

consists of design services, procurement and supply of equipment, assembly, installation &

commissioning. The company has so far completed a total of 92 TG island projects with an

aggregate output capacity of 1,799 MW which includes projects executed in Uganda, Kenya,

Zambia and Philippines.

The company has also ventured into the business of Engineering, Procurement and

Construction of Boiler-Turbine Generator (“BTG”) island projects and the balance of plant

(“BOP”) portion for steam turbine power plants with output capacity from 52 MW up to 150

MW. The company has completed a total of 2 BTG island projects with an aggregate output

capacity of 111.50 MW.

Industry Overview

The Indian power sector has undergone a variety of reforms intended to encourage private

sector participation since the early 1990s. The Government had launched an ambitious

mission of “Power for all by 2012” in 2005. This necessitated significant capacity additions,

especially towards expanding the regional transmission network and inter-regional capacity

to transmit power. Therefore, the Government announced capacity additions of around

78,700MW under the Eleventh Plan. But in view of the progress of the projects, this target

has been revised downwards to about 62,000MW in the mid-term appraisal of Eleventh

Plan. In the captive power segment, the Government expects about 12,000 MW capacity

power plants to be added during the Eleventh Plan period. Besides meeting the demand of

the industry, this would also help supply surplus power to the grid.

Over the last 5 years, power demand has grown at a CAGR of 7.1% while supply has grown

by only 6.6% resulting in the Base Load Deficit widening from 8.4% in 2005-06 to 10.1% in

2009-10. During the same period, movement in Peak Load Deficit has been very uneven,

with the deficit rising from 12.3% in 2005-06 to 16.6% in 2007-08, before declining again to

12.7% in 2009-10.





Investment Rationale

Diversified Product Portfolio

The company has a diverse product range which includes, steam turbine generators,

horizontal hydro generators, vertical hydro generators, diesel engine generators, wind

turbine generators, gas engine generators, gas turbine generators, high voltage motors and

generators for Geo Thermal and Solar thermal applications. The diversified product offering

has allowed the company to develop a broad customer base across a range of industries and

has reduced its dependence on any particular industry or market segment. The wide

portfolio of products gives it a competitive advantage, as it can cater to all the major

verticals of the power generation industry.

Technology Ownership, Relationships and In-House Design Expertise

The company has a well established track record of successfully absorbing new technologies

for manufacturing generators and has entered into arrangements with international power

equipment manufacturers such as Siemens AG and Sicme Motori SrL which gives it access

to the latest know-how, design and technology to manufacture AC Generators. It also has an

in-house product development team comprising 50 technical personnel that works in

conjunction with its technical partners to focus on new product development at lower costs,

improving quality and design. In 2007, it granted a limited license to G.E., USA to

manufacture generators using its design for the Brazilian market.

Project Execution Capabilities for Power Project Business

From the inception the company has completed a total of 94 projects with an aggregate

output capacity of 1910.50 MW which includes projects executed in India, Uganda, Kenya,

Zambia and Philippines. The company has gained significant experience and has

established a track record and reputation for efficient project management, execution and

timely completion of projects in the power generation sector. This has enabled it to satisfy

the pre-qualification criteria for bidding for similar and more complex projects.

State-of-the-Art Manufacturing Facilities and Cost Efficient Production

The company's two manufacturing units are equipped with advanced machines and tools

and are ISO 9001:2008 compliant. It has invested in the latest technology to meet the quality

expectations of its customers. Further, its IT infrastructure assists in ensuring seamless

interaction between various teams and processes within the company. The company has

been able to provide competitively priced products through cost efficient production and

with the highest quality standards which enables it to receive new business from its existing

and new customers





Concerns

Significant % of Sales Derived from Sale of Steam Turbine Generators For the period ended March 31, 2011, the sale of steam turbine generators contributed

76.14% of the restated stand-alone net sales. Any major change in technology could affect

the topline of the company.

Dependent on Technology Transfer Agreements

The company relies upon the provision of technology from certain technology providers

with whom it has executed license agreements for its manufacturing business. If any of

these agreements are terminated, the company may not be able to manufacture its

products

Peer Valuation

Price

INR

Mkt Cap

(Mn)

Total Revenue

(Mn)

PAT

(Mn)P/E P/BV

ROE

(%)

TD Power Systems 261 8,630 8,746 567 15.2 2.1 30.3

BHEL 1,760 861,770 427,873 60,534 14.2 4.3 30.0

Alstom Projects 534 35,800 18,189 1,692 21.2 6.1 28.8Source: Ace equity, RHP

TDP lacks direct peer in its niche captive power segment (1-52MW). It holds leading

market share in this segment, on account of strong technical and management expertise.

The company has been able to maintain a negative working capital which has helped it in

improving its return ratios.





Financials

Particulars (INR Mn) Mar-11 Mar-10 YoY (%)

Income 8,637.3 7,382.2 17.0

Expenditure 7,743.2 6,664.3 16.2

Operating profit 894.0 718.0 24.5

Op. profit margin (%) 10.4 9.7 62 bps

Other income 109.2 71.6 52.5

PBDIT 1,003.2 789.6 27.1

Depreciation 80.5 56.5 42.5

PBIT 922.7 733.1 25.9

Interest 66.9 42.3 58.2PBT 855.8 690.8 23.9

Tax 289.3 255.7 13.1

Reported PAT 566.6 435.1 30.2

PAT margin (%) 6.5 5.8 64 bps

Particulars (INR Mn) Mar-11 Mar-10

Net Block 1,132.0 1,104.0

Capital Work-in-progress 20.4 0.0

Fixed Assets 1,152.5 1,104.0

Investments 0.1 3.9

CA, Loans and Adv. 5,540.1 4,816.8

Current Liabilities 3,963.9 3,880.2

Loans 855.7 682.2

Net Worth 1,873.1 1,318.4

Liabilities and Provisions

Share Capital 243.7 63.4

Reserves 1,557.5 1,250.7

Capital Reserve on Consolidation 71.8 0.4

Net Worth 1,873.1 1,318.4

Outlook & Valuation

TDP’s business model is well diversified in terms of power equipment manufacturing

and EPC, which is an emerging business segment. It is the leader in the captive power

segment below 50MW segment and has no direct peer in this space. However, the

company’s size is very small compared to its peers both in the domestic and the

international markets. Post issue, TDP’s price band suggests a P/E range of 14.9x –

15.2x its FY11 EPS. On P/B front, the stock is priced at 2.0x – 2.1x its TTM Book Value

per share. We recommend Subscribe on the stock.





Unicon Investment Ranking Methodology

Rating Buy Accumulate Hold Reduce Sell

Return Range >= 20% 10% to 20% -10% to 10% -10% to -20% <= -20%

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td power systems ltd - ipo note

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