Apply for the medium and long term
TD Power Systems Limited (TDPS) is tapping the capital markets with its issue to raise Rs 227 crs in a price band of Rs 256-261. The company has allocated 13,04,550 shares to anchor investors at Rs 256. The issue has opened on Wednesday the 24th of August and closes today the 26th of August.
| Price Band | Rs 256 – Rs 261 |
| Issue Size in Rupees | Rs 227 crs |
| Issue Size in Shares | 88,67,188 Equity Shares at Rs 256 to 86,97,318 Equity Shares at Rs 261 |
| QIB’s | 44,33,594 Equity Shares at Rs 256 to 43,48,659 Equity Shares at Rs 261 |
| Non Institutional Investors | 13,30,078 Equity Shares at Rs 256 to 13,04,598 Equity Shares at Rs 261 |
| Retail Investors | 31,03,516 Equity Shares at Rs 256 to 30,44,061 Equity Shares at Rs 261 |
| Anchor Investors | Alloted 13,04,550 Equity Shares at Rs 256 |
| Global Co-ordinators &Book Running Lead Managers | Enam Securities Private Limited |
| Book Running Lead Manager | Antique Capital Markets Private Limited |
| Book Running Lead Manager | Equirus Capital Private Limited |
| Syndicate Member | India Infoline Limited |
| Isssue Opening Date | Wednesday 24th August |
| Isssue closing date | Friday 26th August |
| IPO Grade | CARE grade 4/5 indicating above average fundamentals |
| Paid -up Capital Pre IPO | 2,43,70,401 Equity Shares |
| Paid -up Capital Post IPO | 3,32,37,589 Equity Shares at Rs 256 to 3,30,67,719 Equity Shares at Rs 261 |
| Market Cap post listing | Rs 850.88 crs at lower band to Rs 863.07 crs at higher band |
| Bid Lot | 25 shares |
| Bidding Amount for Retail | 750 shares at Rs 261 or Rs 1,95,750 per application |
Business
TDPS is one of the leading manufacturers of AC generators with output capacity of 1MW to 52 MW for prime movers such as steam turbines, gas turbines, hydro turbines, wind turbines, diesel and gas engines. The company focuses on manufacturing custom-designed generators for customers who are based across the world. The company also manufactures motors. Since the beginning of the company and till June 2011, the company has manufactured a total of 1,538 generators with a total output capacity of 12,657 MW of which 233 generators have been supplied to customers across 34 countries. The current order book for generators as on 30th June 2011 is Rs 379.56 crs.
The company also executes Turbine Generator island projects for steam turbine power plants with output capacity up to 52 MW using a Japanese turbine combined with TDPL generator. The scope of work in TG Island projects consist of design services, procurement and supply of equipment, assembly, installation and commissioning. Till date from inception, the company has completed 92 TG Island projects with an installed aggregate output capacity of 1,799 MW which includes projects executed in Uganda, Kenya, Zambia and Philippines.
The subsidiary of the company DF Power Systems Power Limited is in the business of Engineering, Procurement and Construction, executing boiler-turbine Generator island projects and balance of plant portion for steam turbine power plants with output capacity from 52 MW up to 150 MW. The scope of work in the EPC business comprises of design services, procurement and supply of equipment’s, assembly and installation and commissioning (excluding civil works). The subsidiary since inception has completed 2 BTG island projects with an aggregate output capacity of 111.50 MW.
The order book for the projects division is Rs 183.14 crs and the EPC division is Rs 530.89 crs, making a total order book of Rs 1094.69 crs. Customers include people from various industries like steel, paper, cement, chemical, metals, sugar co-generation, bio-mass power plants, hydroelectric power plants and Independent Power plants.
Strong relations with technology partners are a key in this business and TDPL has Toyo Denki of Japan and Voith Hydro of Germany. The company has granted a limited license to General Electric Company USA to manufacture generators using the design of TDPL for the Brazilian market.
Objects of the issue
The objects of the issue are as follows: –
| Finance the expansion of manufacturing plant at Dabaspet. | Rs 946.35 m |
| Construction of a project office in Bangalore City | Rs 289.09 m |
| Repayment of debt | Rs 302.00 m |
| Funding working capital requirements | Rs 400.00 m |
| General Corporate Purposes |
Financials
The net income of the company has grown from Rs 506.57 crs in March 2009 to Rs 745.38 crs in March 2010 and Rs 874 64 crs in March 2011. The net profit has grown from Rs 37.14 crs in March 2009 to Rs 43.51 crs in March 2010 and Rs 56.65 crs in March 2011.
| year 2009 | year 2010 | year 2011 | |
| Rupees in millions | |||
| Gross Sales | 5172.63 | 7566.32 | 8917.33 |
| Less Excise Duty | 211.89 | 184.11 | 280.08 |
| Net Sales | 4960.74 | 7382.21 | 8637.25 |
| Other Income | 104.95 | 71.64 | 109.17 |
| Total Income | 5065.69 | 7453.85 | 8746.42 |
| Consumption of Raw Materials | 1602.04 | 1812.88 | 2273.90 |
| Stores, Spare parts & Components | 2010.5 | 1377.6 | 1146.91 |
| Purchases for project business | 263.42 | 2743.37 | 3320.24 |
| Purchases for EPC | 576.34 | 730.13 | 1001.80 |
| Other Expenditure | 58.92 | 99.03 | 147.71 |
| Total Expenditure | 4511.22 | 6763.01 | 7890.56 |
| Profit before Tax and Extraordinary | 554.47 | 690.84 | 855.86 |
| Tax provisions | 186.99 | 255.73 | 289.31 |
| Profit before extraordinary | 367.48 | 435.11 | 566.55 |
| add provision no longer required | 3.9 | 0 | |
| Profit after extra ordinary items | 371.38 | 435.11 | 566.55 |
| NET MARGINS | 7.49 | 5.89 | 6.56 |
The margins have been stable and hovering in the region of 6 to 7.5%.
Comparisons
The company has chosen to compare itself with BHEL and Alstom Projects. The comparison is not quite fair but you need a few names, therefore they are there. BHEL has a turnover of over Rs 41,000 crs and Alstom Projects is close to Rs 2,000 crs. The product line for TDPL is not identical for either of the competitors and the core business of the company TDPL which is generators in the 1 MW to 52 MW range the company has a 75 – 80% market share.
The big growth driver will be the Wind Turbine Generator business going forward. In this segment of WTG the company is working with three four large world players and this business would become a significant business for the company. The important point to note about this business is the fact that this would be an assembly line type of activity unlike the custom made products that the the company makes in its existing business. This would help in significant addition to the top line and also bottom line with economies of scale helping in improving margins.
The full impact of this business would be felt in the financial year 2012-13.
Valuations
Based on the financial performance of the company for the year ended March 2011, the net profit for the year was Rs 566.55 million. The pre-IPO equity of the company was 243.70 lakh shares which translate into an EPS of Rs 23.24. The post issue fully diluted EPS would be Rs 17.04 at the lower end of the price band and Rs 17.13 at the upper end of the price band. The PE multiple of the same would be 15.02 times at the lower end and 25.24 times at the higher end of the price band.
The issue looks expensive when compared to its peers like BHEL and Thermax. The positive side is the technology and relations that the company ghas with global OEM’s will help in future.
Conclusion
The company looks fundamentally solid and has a good business plan ahead of it. Looking at the market sentiment, things look expensive but at the same time the quality of Anchor investors and subscription level and interest from QIB’s cannot be ignored. I believe there may not be any significant losses or gains to be made on listing. However investors would be rewarded if they have a medium or long term approach to the company.
Yet another way of low risk investing would be to look at the IPO post listing and eliminate the market uncertainty of the next 2 weeks, the time to listing for the company.
SEBI Disclaimer: – I intend to subscribe to the above issue.
