Presence in attractive business segment offers scope for growth
Tecpro Systems Limited is tapping the capital markets with an IPO Presence in attractive business segment offers scope for growth to raise Rs 256 crs to 268 crs in a price band of Rs 340 to Rs 355. The issue consists of a fresh issue of 62.5 lakh shares and an offer for sale of 13 lakh shares. The issue has opened on Thursday the 23rd of September and closed yesterday for QIB’s and closes Tuesday the 28th of September for HNI’s and retail. The QIB portion was subscribed 27.99 times.
| Size of Issue in shares | 75,50,000 Shares |
| Fresh Issue | 62,50,000 Shares |
| Offer for Sale | 13,00,000 Shares |
| Employee Reservation | 2,00,000 Shares |
| Price Band | Rs 340 to Rs 355 |
| Value of Issue | Rs 256.7 crs to Rs 268.03 crs |
| Anchor Investors | 13,23,000 shares were alloted to anchor investors at Rs 355 |
| QIB’s | 44,10,000 and after anchor allocation 30,87,000 Shares |
| Non Institutional Investors | 7,35,000 Shares |
| Retail Investors | 22,05,000 Shares |
| Marketcap post issue | Rs 1716.11 crs at Rs 340 to 1791.82 crs at Rs 355 |
| Book Running Lead Manager | SBI Capital Markets Limited |
| Kotak Mahindra Capital Company Limited | |
| Syndicate Member | Sharekhan Limited |
| Isssue Opening Date | Thursday 23rd September |
| Isssue closing date for QIB’s | Monday 27th September |
| Isssue closing date for HNI’s and Retail | Tuesday 28th September |
| IPO Grade | 4/5 by CRISIL indicating above average fundamentals |
| Bidding Lot | 15 Shares |
Business
Tecpro is an established material handling company in India, engaged in providing turnkey solutions in material handling, balance of plant (BOP) and engineering, procurement and construction (EPC) contracts. The company in its flagship business of material handling solutions , designs, engineers, manufactures, sells, commissions and services a range of systems and equipment for the core infrastructure related sectors like power, steel, cement and other industries. Over the years the company has developed in-house capabilities for providing comprehensive solutions in material handling and ash handling systems.
The company was incorporated in 1990 and began operations in the material handling business in 2001. The company has executed till March 2010, 1042 material handling orders and is currently having 269 material handling orders under execution. The company has executed 72 ash handling projects and has 33 orders under execution. The total order book as on 31st July is over Rs 2300 crs which is 1.6 times the sales for FY 2010. The ability to design coal handling and ash handling systems in-house has helped the company in consortium to win an order of Rs 993 crs from the Chhattisgarh State Power Generation Company for a 500 MW thermal plant at Korba West. This is a BOP contract and the first that the company has won.
The company has in 2007 entered the EPC segment for thermal power plants, in which they manage the erection and commissioning of the boiler, turbine and generator (BTG) package along with undertaking the engineering, design, supply and commissioning of other equipment and services in an EPC contract. The company either collaborates or outsources to a third party supplier for providing BTG packages in relation to our EPC contracts. Currently the company undertakes EPC for small thermal power plants.
Financials
The company reported total operating revenues of Rs 793.3 crs for March 2009 and Rs 1454.9 crs for March 2010. The net profit after tax was Rs 55.4 crs and Rs 108.5 crs respectively. Based on the pre-IPO capital of 3.393 cr shares, the earnings per share were Rs 16.34 and Rs 32 respectively. However there was a merger between the group companies and the shares allotted on merger increased the share capital to 4.422 cr shares as on 31st March 2010. Based on this being the pre-IPO capital of 4.422 cr shares the earnings for March 2010 come to Rs 25.57 per share.
Comparison
The company has compared itself with BGR Energy Systems Limited, Elecon engineering Company Limited, Mcnally Bharat Engineering Company Limited, Sunil Hitech engineers Limited and TRF Limited. The price earnings multiple for these companies varies between 11 times to just about 29 times. If one were to compare with Tecpro based on pre-IPO earnings of Rs 25.57 the shares are being offered in a price band of Rs 340-355 which corresponds to a PE of 13.30 to 13.88 times. The valuation seems fair on a historical basis.
If however we look at the valuations on a fully diluted basis, based on the post IPO capital of 5.047 cr shares, the EPS for March 2010 would be Rs 21.50 and the PE based on the lower band of Rs 340 would be 15.8 and at the upper end of the price band of Rs 355 would be 16.51 times.
Conclusion
The share is being offered in a price band of Rs 340-355 which translates into a PE of 15.8 times at the lower end and 16.51 times at the upper end leaving some scope for appreciation in the medium term. Looking at the prospects of the industries where Tecpro operates particularly the Power sector, offers huge growth prospects. The company would be able to leverage its core strengths as a materials handling player. Bidding for EPC of power plants and outsourcing the BTG part of the business would help grow the company. I believe investors should apply for this issue and expect decent returns in the medium term.
SEBI Disclaimer: – I intend to subscribe to the above issue.
