Tecpro Systems : Debt Continues

Tecpro Systems : Debt Continues to Offset an Otherwise Good Show…

Reco : Buy    Cmp : 160   Target : 198

Tecpro reported Q2FY13 revenue at Rs 591 cr (Up 30% YoY) which was in-line with our estimates. However, Adj. PAT grew by 14% YoY to Rs 10 cr due to continued increase in the interest outgo as a result of further increase in working capital borrowing. The EBITDA margin came in at healthy 13.2% (Up 170 bps YoY). Material handling segment accounted for 63% of revenue followed by BoP and ash segment at 29% and 8%, respectively.

Key Highlights

Order backlog: Order backlog increased by 3% QoQ to Rs 4,430 cr (1.5x FY13E sales) due to strong order inflow at Rs 670 cr. in coal and ash handling segment. Post the quarter; company has bagged orders worth Rs 210 cr taking the YTD order inflow to Rs 1,619 cr. Moreover, the company is L1 in another Rs 650 cr worth of orders. We have estimated order inflow for FY13E at Rs 3,000 cr.

Burgeoning Debt: Working capital debt increased further to Rs 1,677 cr in Q2FY13 due to higher outstanding receivables. The debtors stood at Rs 2,385 cr including retention money of Rs 815 cr. In order to manage receivables, Tecpro has started accepting LC’s from customers. This should help in curtailing delay in payments, going forward. However, we anticipate the working capital debt to stay at current levels for FY13E due to execution of BoP projects.

Valuation

While the order inflow for the year is robust at Rs 1,600 cr, higher debt continues to mar profitability for Tecpro. Hence, we revise downwards our FY13E and FY14E EPS est. by 9% and 12% resp, to factor in higher debt levels. Our revised target price now stands at Rs 198 based on 7.5x FY14E EPS of Rs 26.4 (earlier TP Rs 224).

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