Nuvama Institutional Equities has initiated coverage on the stock of Techno Electric & Engineering Company (TEEC) with a 'buy' recommendation, terming the stock a “value powerhouse”.
Nuvama has a target price of ₹450 on the stock, implying a 42 percent upside from the stock's December 29 close of ₹317.45.
The stock has witnessed a healthy gain in the last one year, jumping nearly 36 percent against a 6 percent gain in benchmark Sensex.
Nuvama sees the revenue visibility of the company at an all-time high.
The brokerage firm highlighted that TEEC has a deep footprint across power generation, transmission and distribution (GTD) and allied infra industries.
Nuvama said the company is riding on a ₹3 lakh crore opportunity over the next five years in four major verticals:
(i) ₹1.5 lakh crore transmission capex backed by Green Energy Corridor ( ₹0.9 lakh crore) and revived focus on intra-state, apart from grid upgradation (overall ₹0.5 lakh crore).
(ii) ₹0.8 lakh crore FGD packages to be awarded by 80GW thermal capacities owned by SEBs/private players—competition has eased now.
(iii) ₹0.5 lakh crore smart metering opportunity in the RDSS scheme—margins are better than other EPC businesses.
(iv) ₹0.3 lakh crore third-party data centre EPC opportunity. Presently, TEEC works on an ownership basis of data centres, but it would exit gradually. Its current ₹ 3,600 crore order book (ex-in-house data centre) implies 3 times revenue visibility, Nuvama observed.
Nuvama underscored TEEC’s niche lies in its ability to identify new business opportunities in adjacent areas and successfully build up critical mass. Furthermore, the company has an unwavering focus on profitability, return on equity (RoE) and cash flows—evident in its ratios across time series.
"Of the 129MW wind projects it owns, it would take up nearly 50MW of generation for its own data centre operations and dispose of about 80MW gradually. This could fetch TEEC about ₹300 crore-plus equity, thereby further bolstering its balance sheet," said the brokerage firm.
The brokerage firm believes the stock is a play on the Government of India’s focus on strengthening the power sector’s value chain, especially distribution, digitisation initiatives and push for localisation.
Moreover, the company bids selectively to focus on complex jobs, which entail higher profitability and cash flows. It bids for projects funded by either bilateral, multilateral or government funding agencies to ensure reliable payments and cash flows.
"We peg adjusted earnings CAGR at 28 percent over FY22–25E driven by FGDs, transmission, smart meters, etc., along with an improving margins trajectory. Heightened competitive intensity, evacuation issues and execution delays are some key risks," said Nuvama.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of MintGenie.
