Stock Review: Tecpro Systems

 

Tecpro Systems has grossly underperformed the Sensex since it listed on the bourses in December last year. The stock has fallen 41% against a 9% rise recorded by the Sensex during this period. This despite the fact that the company has had a robust financial performance not only last year, but has registered stupendous growth in sales and operating profits over the last five years.

Tecpro Systems is a turnkey solutions provider for bulk material handling in captive power plants, cement and steel industries. It also has capabilities in handling coal and ash.

FINANCIALS

The company's top line grew 35% to 1,973 crore for the year ended March 2011. Its bottom line rose by more than 24% during the period. Tecpro's operating margins have improved by nearly 60 basis points for the year as it was able to curtail the impact of rising commodity prices. In fact, material costs declined by about 19%.

The margins would have improved further but for the rise in interest rates. Given its highly leveraged balance sheet, rising interest rates are likely to dent the company's profitability in the near term.

GROWTH DRIVERS

Apart from bulk material handling, the company has now moved on to become a complete Balance of Plant (BoP) package provider. It is thus in line to grab a good chunk of the BoP orders arising from the large expenditure proposed for the power sector under the 12th five-year plan. Tecpro is also foraying into waste processing business.

The company claims it has already received inquiries from prominent cement manufacturers for them same.

VALUATIONS

At 262 per share, Tecpro Systems trades at a P/E of 9.7. It has a strong order backlog, translating into 2.2x FY11 earnings and has given guidance of about 35% revenue growth for FY12. Considering this, the stock commands a forward P/E of 7.6 (FY12 E), which is quite reasonable for a company that has good growth potential. The stock is thus an attractive buy at the current level.