CRISIL IERIndependent Equity...

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Apollo Hospitals Enterprise Ltd

CRISIL IERIndependent Equity Research

Enhancing investment decisions

Detailed Report

Initiating Coverage

Technofab Engineering Ltd


Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process – Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-

point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).

CRISIL Fundamental Grade Assessment

CRISIL Valuation Grade Assessment

5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP) 4/5 Superior fundamentals 4/5 Upside (10-25% from CMP) 3/5 Good fundamentals 3/5 Align (+-10% from CMP) 2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP) 1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP)

Analyst Disclosure Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company. Disclaimer: This Company-commissioned CRISIL IER report is based on data publicly available or from sources considered reliable. CRISIL Ltd. (CRISIL) does not represent that it is accurate or complete and hence, it should not be relied upon as such. The data / report is subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this report. Nothing in this report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The subscriber / user assume the entire risk of any use made of this data / report. CRISIL especially states that, it has no financial liability whatsoever, to the subscribers / users of this report. This report is for the personal information only of the authorised recipient in India only. This report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person – especially outside India or published or copied in whole or in part, for any purpose.


Holding its own

Fundamental Grade 3/5 (Good fundamentals)

Valuation Grade 5/5 (CMP has strong upside)

Industry Construction & Engineering

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Delhi-based EPC player Technofab Engineering Ltd (Technofab) has carved out a niche for itself in power, water, oil & gas and industrial infrastructure. It has a strong clientele and has been getting repeat orders from clients like NTPC, BHEL and NPCIL. A well-diversified order book of Rs 10.2 bn (2.8x TTM revenues), low gearing (due to IPO in June 2010) and low inventory days place Technofab on a strong footing in the industry. The company has also been focussing on overseas markets and has seen good traction in order flows from these markets. However, we believe this exposes it to logistic challenges. CRISIL Research assigns Technofab a fundamental grade of 3/5, indicating that its fundamentals are good relative to other listed securities in India.

Order book (2.8x TTM revenues) provides healthy revenue visibility Technofab’s current order book is Rs 10.2 bn (2.8x TTM revenues), which provides strong revenue visibility for the next 24-30 months. The order book has been boosted by strong order intake in the year till date, which has been particularly robust as it has received orders worth ~Rs 7.4 bn compared to ~Rs 4.5 bn in entire FY11. However, ~15% of the order book is slow/non-moving. Varied order book limits concentration risk but overseas risk exists Technofab’s order book is well diversified across segments - power (45%), water (23%), oil & gas (14%), industrial infrastructure (14%) and electrical (4%). Also, ~50% of its current order book comprises overseas markets in Africa (Ghana, Mozambique, Ethiopia, Zambia, Kenya, and Malawi) and the Asia-Pacific region (Bangladesh and Fiji) which shields the company from a domestic slowdown. However, the company could face inherent political risks and logistical challenges.

Low gearing - one of the lowest in the industry As of September 2011, Technofab’s gearing was 0.2x, low compared to peers’ average of 2.1x, following the IPO in July 2010. A comfortable balance sheet with low gearing provides ample room for Technofab to fund future growth without the need for equity dilution.

Revenues to grow at a three-year CAGR of 26% We expect revenues to register a three-year CAGR of 26% to Rs 5.8 bn in FY14 driven by a strong order book. EBITDA margin is expected to increase marginally by 20 bps in FY13 to 13% and remain at a similar level in FY14. Adjusted PAT is expected to increase at a CAGR of 18% to Rs 419 mn in FY14. EPS is expected to increase from Rs 24.6 in FY11 to Rs 40.0 in FY14.

Valuations – current market price has strong upside We have used the price-to-earnings (P/E) method to value Technofab and have assigned a multiple of 5x to FY14 earnings. Accordingly, we have arrived at a fair value of Rs 200 per share. At the current market price, we initiate coverage on Technofab with a valuation grade of 5/5.

KEY FORECAST

(Rs mn) FY10 FY11 FY12E FY13E FY14EOperating income 2,016 2,908 3,671 4,749 5,777EBITDA 339 421 468 617 751Adj PAT 192 258 309 363 419Adj EPS-Rs 25.5 24.6 29.5 34.6 40.0EPS growth (%) 63.3 (3.7) 19.9 17.2 15.6Dividend yield (%) 1.0 1.0 1.5 1.9 2.1RoCE (%) 55.1 36.1 25.3 27.7 28.6RoE (%) 46.5 27.0 20.0 19.6 19.1PE (x) 5.8 6.1 5.1 4.3 3.7P/BV (x) 2.2 1.1 0.9 0.8 0.7EV/EBITDA (x) 3.5 1.5 2.4 2.2 1.8

NM: Not meaningful; CMP: Current market price Source: Company, CRISIL Research estimate

CFV MATRIX

KEY STOCK STATISTICS NIFTY/SENSEX 5385/17753 NSE/BSE ticker TECHNOFAB Face value (Rs per share) 10 Shares outstanding (mn) 10.5 Market cap (Rs mn)/(US$ mn) 1,563/32 Enterprise value (Rs mn)/(US$ mn) 649/13 52-week range (Rs)/(H/L) 184/109 Beta 0.7 Free float (%) 58.6% Avg daily volumes (30-days) 10,188 Avg daily value (30-days) (Rs mn) 1.5

SHAREHOLDING PATTERN

PERFORMANCE VIS-À-VIS MARKET

Returns

1-m 3-m 6-m 12-mTechnofab 14% 26% 22% -2%NIFTY 3% 11% 13% 1%

ANALYTICAL CONTACT Chetan Majithia (Head) [email protected] Sandeep Panchal [email protected] Bhaskar Bukrediwala [email protected]

Client servicing desk +91 22 3342 3561 [email protected]

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5

Valuation Grade

Fund

amen

tal G

rade

Poor Fundamentals

ExcellentFundamentals

Str

ong

Dow

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ong

Ups

ide

39.2% 40.3% 40.5% 41.4%

13.4% 12.9%5.8% 5.8%

6.6% 6.5%

40.8% 40.2%53.7% 52.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Mar-11 Jun-11 Sep-11 Dec-11

Promoter FII DII Others

February 29, 2012

Fair Value Rs 200 CMP Rs 149


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Table 1: Technofab - Business environment

Parameter

Product / service offering • Undertakes turnkey contracts mainly for Balance of Plant (BoP) and related auxiliary systems in power and industrial infrastructure. Started with offering services such as installation of the piping system along with related civil/structural works for piping supports. Later on diversified into handling other BoP works like fuel oil, unloading and handling systems.

• Also undertakes EPC work in the water and oil & gas segments. In the water segment, the company undertakes work related to effluent treatment, recycling systems and sewage treatment while in oil & gas, its services include design & engineering, procurement, and commissioning of storage tanks for storing petroleum products and other liquids.

Geographic presence • Domestic (49% of current order book): Madhya Pradesh, Maharashtra, Orissa, Tamil Nadu, Chhattisgarh

• Overseas (51% of current order book): Ghana, Fiji, Mozambique, Ethiopia, Zambia, Kenya, Malawi, Bangladesh and etc

Market position • Presence in niche segment in the BoP with limited competition. However, the company has also started accepting comprehensive BoP work instead of small niche work. The company is also increasingly looking at international markets where competition is low

• Good relationship with various clients including NTPC and various private power players. Track record of executing more than 30 orders in the international markets

Industry outlook • CRISIL Research expects total investments of Rs 10,300 bn over the next five years (2012-16) in the domestic power segment despite the current hurdles in terms of environmental clearances, regulatory issues and huge accumulated losses of state electricity board (SEBs)

• CRISIL Research expects investments in domestic water supply and sanitation to more than double to Rs 2,500 bn during FY12-16, while investments in oil & gas are expected to rise 1.8x to Rs 7,200 bn in next five years

Sales growth (FY08-FY11 – 3-yr CAGR) Average EBITDA margins (FY08-11) Earnings growth (FY08-FY11 – 3-yr CAGR)

53% 14.5% 52%

Sales forecast (FY11-FY14 – 3-yr CAGR) Average EBITDA margins (FY11-14) Earnings growth (FY11-FY14 – 3-yr CAGR)

26% 13.3% 18%

Demand drivers • Increasing government spending on power and water management contracts • Capacity expansion plans of private player in power and oil & gas segments

Key competitors • Power segment: Sunil Hitech, Tecpro system, Thermax, Petron Engineering, McNally Bharat • Water segment : IVRCL, Pratibha Industries, , Triveni Eng, Ramky • Oil & Gas segment: Petron Engineering, L&T, Hindustan Dorr-Oliver

Key risk • Slowdown in government spending on infrastructure. Also, with a high interest costs regime and a sluggish macro-economic environment, private players have deferred capacity expansion plans

• Possibility of political instability in African countries where company is taking orders • Higher working capital requirement going forward as the company started taking comprehensive

big ticket BoP projects

Source: Company, CRISIL Research

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Grading Rationale Emerging EPC player focusing on niche works in power, water and oil & gas Technofab is an EPC player focusing on niche works in infrastructure segments like power,

water and oil & gas. The company has metamorphosed from a small fabricator for piping,

valves and pressure vessel in power plants to a comprehensive service provider for BoP,

handling works in areas like fuel oil, unloading and handling systems. Over a period of time,

the company has also expanded into other segments such as oil & gas, water and waste

water management and electrical distribution. In the water segment, the company undertakes

work related to effluent treatment, recycling systems and sewage treatment. In oil & gas, its

services include design and engineering, procurement, and commissioning of storage tanks

for storing petroleum products and other liquids.

The company has also expanded its geographic footprint to south-east/west Africa such as

Ghana, Mozambique, Ethiopia, Zambia, Kenya, and Malawi as well as Asia Pacific countries

like Fiji and Bangladesh.

Table 2: Segment-wise scope of work Segment Scope of work

Power Undertakes Electro mechanical & water related BoP packages like fuel system, Fire protection system, low pressure piping. Liquid waste system. Also, undertakes comprehensive BoP services for gas based power plant.

Oil & gas Undertakes EPC work for fuel handling packages, fuel storage and packaging utility. Also undertakes works related to transportation packing, works loading, on-site reception and unloading, site storage, in-plant transportation, on-site fabrication and assembly, erection, commissioning and testing of equipment

Water & waste water treatment Water and liquid waste, effluent treatment and recycling systems, sewage treatment plants to collect, treat and recycle raw water and effluent discharges. The plants are designed, supplied, constructed, erected and commissioned on a turnkey basis. Also undertakes water pipelines and pumping works.

Industrial infrastructure Detailed engineering, procurement, fabrication, erection, testing and inspection, commissioning of the piping system along with all related civil/structural works for over-ground and underground piping supports

Electrical & rural distribution Design and detailed engineering, sizing and specifications for procurement, installation, testing, commissioning of a variety of electrical and control items like HT and LT switchgear, control panels, transformers, metering, cabling and lighting along with associated civil works


Good execution track record The company has a good execution track record over its four-decade presence in the

business – has executed more than 120 projects across segments and geographies; has also

received repeat orders from renowned clients like National Thermal Power Corporation

(NTPC), Bharat Heavy Electric Ltd (BHEL), Nuclear Power Corporation of India Ltd (NPCIL),

Steel Authority of India (SAIL), Hindalco, Lanco and many other private players. This

highlights the comfort these players have on Technofab’s execution capabilities. Also,

Technofab has done BoP work for all except two power plants of NTPC.

A strong clientele; has

bagged repeat orders from

NTPC, BHEL, NPCIL


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Table 3: Key projects executed in past

No. Project Client Region Segment Value

(Rs mn)

1 Fuel oil handling system. HFO storage tanks of capacity 500 KL and LDOStorage tanks of 150 KL capacity with associated pumping, piping,instrumentation and electrical

Lanco Infratech Karnataka Thermal Power 885

2 New seawater intake pumping station and fibre glass pipeline Tema Oil Refinery (TOR) Ghana Oil & Gas 625 3 Comprehensive water supply and sanitation project Ministry of Water Resources Ethiopia Water 439 4 Low pressure piping package for 4 x 500 MW power plant NTPC Orissa Thermal Power 240 5 Piping and equipment system to connect natural steam spewing

geothermal underground wells to steam turbine power plants Kenya Power & Lighting Co Kenya

Geothermal Power

95

6 Rehabilitation of water treatment plants including old equipment like clarifiers and filters

AHC Mining Municipal

Services Zambia Water 70


Order book at 2.8x TTM provides strong revenue visibility; boosted by strong order inflows in FY12… Technofab’s current order book of Rs 10.2 bn translates into 2.8x TTM revenue. This provides

strong revenue visibility for the next 24-30 months. In addition to this, the company is L1 in

projects worth Rs 600 mn and have submitted bids worth Rs 40 bn.

Technofab’s order book has grown at a CAGR of 29% during FY08-11 and order intake during

the year till date has been particularly robust as the company has received orders worth

Rs 7,400 mn as compared to ~Rs 4,500 mn in FY11. With another quarter to go before fiscal

year ends, we expect the company to log ~Rs 8,000 mn of order flows in FY12 and have

factored the same in our assumptions.

Figure 1: Order book at 2.8x TTM is strong Figure 2: Order intake has been robust

Source: Company, CRISIL Research Source: Company, CRISIL Research

2.4 3.8 5.0 5.3 7.0 10.2

4.0

4.6

3.4

2.6

2.4

2.8

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0

2

4

6

8

10

12

FY07 FY08 FY09 FY10 FY11 Jan'12

(Rs bn)

Order book OB/Sales (x)

2.1 2.7 3.1 4.6 8.0

6.0

7.2

0%

28%

13%

48%

74%

-25%

20%

-40%

-20%

0%

20%

40%

60%

80%

0

1

2

3

4

5

6

7

8

9

FY08 FY09 FY10 FY11 FY12E FY13E FY14E

(Rs bn)

Order Inflow y-o-y growth ( RHS)

Order book of Rs 10.2 bn

provides revenue visibility for

more than two years

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Table 4: Key projects in hand

No. Project Client Region Segment Value

(Rs mn)

1 Design, supply and construction of petroleum storage tank farm and loading gantry

Fuel Trade Ltd Ghana Oil & Gas 1,240

2 LP piping package for 6 x 150 MW Mahan CPP Hindalco MP Ind. Infra 730

3 EPC package of additional away from reactor spent fuel storage facility for Tarapur Atomic Power Station, units 1 & 2

NPCIL MP Power 449

4 Raw and service water system package for 500 MW fast breeder reactor project

NPCIL Tamil Nadu Power 440

5 Rehabilitation and augmentation of Isiolo Town water and sewerage treatment plants

Northern Water Service Board

Kenya Power 304

6 LP piping package for 6x660 MW ultra mega power project, Sasan

Reliance Infra MP Con. power 298

7 Civil and electromechanical works for rehabilitation and expansion of Agona and New Edubiase water supply system

Ghana Water Company

Ghana Water 286

8 220/132 KV, 2x100 MVA sub-stations including all civil works, automation system

Uttar Pradesh Rajkiya Nirman

Uttar Pradesh Electric 183

9 LP piping system package for 2x600 MW thermal plant, phase I Lanco Infratech MP Power 137

10 HFO storage and distribution package for smelter plant Hindalco MP Ind. Infra 42

Source: Company, CRISIL Research … however, ~15% of orders either stuck or moving slowly

A detailed analysis of Technofab’s order book reveals that ~15% of the total orders -

amounting to ~Rs 1.45 bn - are either not moving or moving slowly. Most of these projects are

in the conventional power sector which is plagued by problems such as environmental

clearance and fuel supply. Of the Rs 1.45 bn, ~40% are stuck as the execution depends on

the progress of the power projects. We have adequately factored these projects in our

assumptions and accordingly estimated revenues.

Orders worth ~Rs 1.45 bn are

stuck or moving slowly


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Table 5: Details of slow moving order book

Project Client Award Date Value

(Rs mn)

Residual value as of

Dec'11 (Rs mn)

Completion Date Status

Risk (CRISIL

Research Opinion)

Maharashtra, Amravati India Bulls Dec-10 151.0 120.8 Mar-13 Slow Moving High Maharashtra, Nasik India Bulls Dec-10 151.0 115.3 Mar-13 Slow Moving High Maharashtra, Amravati India Bulls Sep-11 155.0 141.6 Mar-13 Not Moving High Maharashtra, Nasik India Bulls Sep-11 209.5 209.5 Mar-13 Not Moving High Vidharbha Lanco Infra Nov-10 65.0 65.0 Dec-12 Slow Moving High J&K Power Dev Dept Mar-10 158.9 158.9 Mar-14 Not Moving High Sasan, Madhya Pradesh Reliance Power Nov-10 262.6 204.8 Mar-13 Slow Moving Medium Butibori, Maharashtra Reliance Power Sep-10 141.2 57.6 Dec-12 Slow Moving Medium Sasan, Madhya Pradesh Reliance Power Dec-10 298.5 229.5 Sep-12 Slow Moving Medium Singrauli, Madhya Pradesh J P Power Aug-11 121.6 121.6 Nov-12 Slow Moving Medium Chhattisgarh Doosan Sep-11 43.6 43.6 Dec-13 Slow Moving Medium Total 1,468

Source: Company, CRISIL Research Average ticket size has increased – execution of large and complex projects is a key monitorable

Traditionally, Technofab has been executing smaller projects (average ticket size of ~Rs 80-

90 mn) in the BoP space, which requires relatively lower technical skills. With the company

now offering the comprehensive BoP package, the average ticket size has increased

significantly to ~Rs 450 mn. These projects are much larger and complex in nature compared

to the previous ones.

Recently, Technofab received two projects each in power (Bangladesh) and water

(Mozambique) valued at over Rs 1,000 mn. This is a first for the company; hence the timely

execution with cost effectiveness is a key monitorable.

Order book well diversified across segments, clients The order book is well diversified across various segments including power, water, oil & gas

and industrial infrastructure. Till FY08, the order book was concentrated towards power (60%)

and oil & gas segment (20%). However, this has reduced to ~45% and 14%, respectively, as

of December 2011.

Concentration towards the

power sector has reduced

significantly

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Figure 3: Segment-wise order book break-up FY08 Figure 4: Segment wise order book currently

Source: Company, CRISIL Research Source: Company, CRISIL Research Increasing exposure to industrial infrastructure counters slowdown in power segment

In order to leverage its expertise in the power sector and to insulate business from segmental

concentration, the company has diversified into the high-margin industrial infrastructure

segment which has a low turnaround time. As of FY11, the industrial infrastructure segment

contributed 49% to Technofab’s revenues. Of the current order book, ~14% of pending orders

and 35% of orders bid comprise industrial infrastructure projects.

Figure 5: Increasing revenue contribution from industrial infra


Conventional power 45%

Nuclear power 15%

Oil & gas 20%

Water & waste water treatment

10%

Industrial Infrastructure

10%

Conventional power 43%

Nuclear Power 2%

Water 23%Oil & Gas

14%

Industrial Infra 14%

Electrical 4%

37%22% 25% 20%

18%27%

10%

55%

13%0%

4%

1%

36%20%

11%

6% 12%

19%

49%

8% 6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY08 FY09 FY10 FY11

Conventional power Nuclear powerOil & gas Water & waste water treatmentIndustrial Infrastructure Elec. Distribution & Electrification

Exposure in industrial

infrastructure segment has

increased to 14% of current

order book


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In our opinion, servicing different segments is a big positive as this has reduced dependence

on the conventional power sector, which is currently going through tough times. Traction of

order flows in segments like water, industrial infrastructure and oil & gas provides comfort –

the company’s efforts to build up capabilities in other segments is paying off, thereby de-

risking the business significantly. The company has also set up a special business unit (SBU)

for electric distribution and rural electrification, and received orders worth Rs 341 mn.

A diversified client mix with minimal concentration

Technofab has evolved as a preferred contractor for renowned players in each of the

segments it is present in. The company has a long association with NTPC, Gammon India,

BHEL and NPCIL and has been getting repeat order from these companies. Also, except a

few clients who contribute ~15% each to the total order book, the share of other clients is not

more than 5-6% of the order book.

Table 6: Top 10 clients and % share

No. Client % of total

order book

1 PowerPac Mutiar (Bangladesh) 15% 2 Fipag – Mozambique 13% 3 Hindalco 8% 4 NTPC 5% 5 India Bulls 5% 6 Reliance Power 5% 7 Lanco Infra 4% 8 Blantyre Water Board (Malawi) 3% 9 Athi Water Service Board (Kenya) 3% 10 Bharat Bhari Udyog Nigam 3%


Overseas business counters domestic slowdown but is not risk-free

Technofab is increasingly focusing on south-east/west Africa and the Asia Pacific region. It

has been taking orders in countries like Mozambique, Ghana, Kenya, Fiji, and Bangladesh,

where the competion is low and opportunities are increasing. The company has bagged

orders worth ~Rs 4,750 mn this year, i.e. ~60% of total orders won this year. International

projects now make up ~50% of the order book as of December 2011.

Till date, the company has executed six projects in these markets and has been getting repeat

orders from clients. The company plans to further expand its presence in countries like

Bangladesh, Indonesia and Vietnam. Recently, it has received an order worth Rs 1,600 mn

from Power Pac Mutiara Khulna Power Plant Limited for comprehensive BoP work in

Bangladesh. Technofab is also executing a water project worth Rs 1,468 mn in Mozambique

for FIPAG, the Mozambican Water Authority. Both these projects are moving on schedule.

No major exposure to a single

client reduces concentration

risk

Overseas markets constitute

~50% of the total order book

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Table 7: Key overseas projects

No. Project Client Status Region Segment Value

(Rs mn)

1 Comprehensive BoP work PowerPac Mutiara In progress Bangladesh Power 1,6002 Rehabilitation and expansion of Nacala City Water Supply

System of 25,000 CuM/day of treated water Mozambican Water Authority In progress Mozambique Water 1,397

3 Design, engineering, supply and construction of petroleum storage tank (oil & gas)

Fuel Trade Ltd In progress Ghana Oil & gas 1,240

4 Design, engineering, supply and construction of oil channel petroleum tanks

Oil Channel Ltd In progress Ghana Oil & gas 900

5 Electrification of Wonji /Shova sugar factory Private In progress Ethiopia Industry 5276 Rehabilitation and renewal works for Walker’s ferry intake high-

lift pumping station and twin pipeline Blantyre Water

Board In progress Malawi Water 369

7 Rehabilitation works for Dandora sewage treatment plant Athi Water Services Board

In progress Kenya Water 348

8 Rehabilitation and augmentation of Isiolo Town water and sewerage treatment plants

Northern Water Services Board

In progress Kenya Water 304

9 Civil and electromechanical works for rehabilitation and expansion of water supply system

Ghana Water Co In progress Ghana Water 286

10 Augmentation and rehabilitation of the Kinoya sewage treatment plant

Public Works Tender Board

In progress Fiji Water 258

Source: Company, CRISIL Research Risks: Political instability, logistical challenges, currency

Although the company has been getting large orders from its overseas markets, which is

boosting its business, we cannot ignore operational hurdles arising from political and

economic risks. In the past, the company has successfully executed projects in the overseas

market. But risks of timely execution and receivables cannot be ruled out as majority of the

countries where the company is currently involved has witnessed political instability in the

past; any similar event now could impact the revenues or receivables. However, we believe

the credit risks are mitigated to a large extent as most projects in these countries are backed

by international funding agencies and also the company has taken necessary measures to

cover the risk by insuring the receivables with the Export Credit Guarantee Corporation

(ECGC).

Also, we believe there will be logistical challenges since some of the newer orders are much

bigger (~Rs 1 bn on an average) compared to Rs 300-400 mn orders that the company has

executed in the past. Since the company has got orders from various countries in Africa, we

believe mobilisation of resources will be a challenge. Additionally, Technofab is exposed to

currency risks, which might hamper the profitability. Although the costs will be in the local

currency, the profit Technofab makes on these projects is exposed to fluctuations in foreign

exchange rates.

Currency risk exists in

overseas markets


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Table 8: Key statistics of countries where Technofab is present State/Centre Mozambique Bangladesh Kenya Ghana Fiji

Nominal GDP ( In US$ bn) 9.9 104.9 35.8 45.1 3.1 Population (mn) 22.9 142.3 41.7 24.2 0.8 GDP per capita (In US$) 458 1,572 1,725 1,810 3,518 General government debt (% of GDP) 32.0 27.7 50.5 41.2 N.A Current account balance (% of GDP) -12.7 1.4 -7.9 -7.2 -11.7

Economy Tourism,

Transportation Agriculture & leather export

Agriculture & Industry

Agriculture and exports

Sugar exports and growing

tourist industry

Key positives

Good track record of macroeconomic

management, rapidly growing mining

sector and strong donor support

Stable economic growth, ranked as

the 4th largest clothing exporter

by the WTO

Track record of fairly robust growth, new

constitution in 2010 to provide

greater transparency

Listed as the World's fastest

growing economy in 2011 by IMF.

One of the world’s top gold producers.

Stable Economy

Low inflation, expansion in the service sector and

growing urbanisation

Key negatives/risks Very low per capital GDP, social unrest.

High public and external debt, limited fiscal

flexibility

High government debt, intermittent

high inflation, history of ethnic

violence

High government debt

Political instability

Unemployment rate 17.0% 5.1% 12.7% 12.9% Country rating by Standard & Poor’s B+ BB- B+ B B

Source: Company, CRISIL Research Table 9: Overseas projects – risk assessment

Risk Level of Risk Risk assessment

Credit risk Moderate credit profile and financial position of south-east African countries and Bangladesh Credit cover from ECGC

Raw material Raw material sourcing has not been tied up. The company will procure the same from the local market.

Further, there are cost escalation clauses in all the projects

Execution risk

Of the overseas projects, ~ 55% are in relatively stable countries like Mozambique (25%) and Bangladesh (29%). In other countries, the company has been executing projects for the past 15 years and there have been limited hurdles. Further, majority of the projects are located along the outskirts which will partially insulate it from social unrest in the main cities.

Given the limited execution track record in big ticket projects, there will be challenges going ahead

Forex risk 85% payment in US dollar and balance in local currency to fund local fixed costs. The company carries risk of

foreign exchange rate fluctuations.

Low Medium High


Government focus on infrastructure to drive growth

With presence across diverse segments, Technofab is well positioned to capitalise on growth

opportunities in the domestic infrastructure space. The major segments of the company –

power, water, industrial infra and oil & gas - are expected to witness healthy investments in

the next five years. CRISIL Research expects total investments of Rs 10,300 bn over the next

five years (2012-16) in the power segment despite the current hurdles related to

environmental clearances, regulatory issues and huge accumulated losses of state electricity

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board (SEBs). While investments in water supply and sanitation to more than double to

Rs 2,500 bn during FY12-16, oil & gas investments is expected to rise 1.8x to Rs 7,200 bn in

the next five years.

Figure 6: Investments in power segment to double Figure 7: Private sector to dominate investment mix

Source: Company, CRISIL Research Source: Company, CRISIL Research BoP opportunity of Rs 1,600 bn over FY11-15…

Since ~40% of the total investments in a power project involve BoP EPC work, this translates

into an opportunity of ~Rs 1,600 bn for the contractors over the next five years. CRISIL

Research estimates the BoP segment to increase at a five-year CAGR of 15% to Rs 1,600 bn.

Though there is strong competition from other established players such as Tecpro and

Thermax, given the size of Technofab and small ticket orders of Rs 100-200 mn, we believe it

will translate into healthy opportunities going forward.

Figure 8: Increasing size of BoP industry Figure 9: Segment-wise BoP opportunity


3,526

6,7061,051

1,807

739

1,821

0

2,000

4,000

6,000

8,000

10,000

12,000

FY07-11 FY12E-16E

(Rs bn)

Generation Distribution Transmission

26% 22%

40%36%

34%41%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY07-11 FY12E-16E

(Rs bn)

Center State Private

207 246 283 318 362 413

18.8%

15.0%

12.4%13.8%

14.1%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0

50

100

150

200

250

300

350

400

450

2009-10 2010-11E 2011-12E 2012-13E 2013-14E 2014-15E

(Rs bn)

Investment % chg (RHS)

Coal Handling

plant (Rs 405 bn)

Ash Handling

plant (Rs 245 bn)

Water treatment &

Cooling tower

(Rs 240 bn)

Civil work(Rs 405 bn)

Others(Rs 325 bn)

BoP (~ 1,620 bn)


12

…but execution issue in power segment could impact growth momentum

Though there are huge investment opportunities for EPC players in the power segment, order

awarding has hit road blocks in the recent past. We expect order awarding to take more time

as this segment is facing regulatory hurdles in terms of environmental and forest clearance

and funding issue given the ill health of State Electricity Boards (SEBs).

Figure 10: Coal-based power plant hits road block


Investments in oil and gas to increase 1.8x in next five years

CRISIL Research expects investments in oil and gas segment to grow 1.8x to Rs 7,200 bn

during FY12-16. Investments in domestic exploration and production (E&P) are expected to

rise almost twofold and will account for 55% of the total investments. Natural gas

infrastructure is expected to more than double in the next five years. In the past year,

Technofab has bagged orders worth Rs 2,117 mn in the overseas oil and gas segment

markets, such as Ghana. We believe expertise developed through execution of these

contracts will also help it bag new orders in India.

148

322

80

174

265 220

-

50

100

150

200

250

300

350

Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 Q4FY11

(Rs bn)

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Figure 11: Huge construction-related investments in oil & gas


Investments in water supply and sanitation to more than double The central government's flagship programmes for urban and rural development – JNNURM

(Jawaharlal Nehru National Urban Renewal Mission) and Bharat Nirman comprised ~65% of

the total investments in the past five years. Given the government’s thrust to improve social

infrastructure, we expect investments in water supply and sanitation to more than double to

Rs 2,500 bn over FY12-16. Techofab has bagged orders worth Rs 3,807 mn in the water

segment which translates to ~17% share of the domestic market.

Lowest gearing vs. peers due to low inventory, IPO

As of September 2011, Technofab’s net worth was Rs 1.5 bn with a net debt of Rs 0.3 bn,

translating into a net debt-equity ratio of 0.2x. This is extremely low compared to the peers’

average of ~2.1x. Given that the construction industry is highly working capital intensive, low

debt-equity is a big positive as it will enable Technofab to raise the necessary amount of

capital through debt without resorting to equity dilution.

Moreover, Technofab has good liquidity with Rs 426 mn in cash as of September 2011. The

company had raised ~Rs 700 mn through an IPO in June 2010, which will be used for funding

its future capital requirements. The company has deployed ~Rs 400 mn till September 2011.

Further, Technofab’s inventory days are much less compared to that of other EPC players as

the projects are progressing smoothly. Since the work which flows to Technofab is usually

required to be executed at the end of the power project, i.e. when ~80-90% of the project is

completed, the chances of stoppage of work are nil. Technofab’s average working capital

days of ~105 days (including loans & advances) during the past four years, is lower than ~150

days for its comparable peers like Sunil Hitech, Hindustan Dorr-Oliver, Thermax and Tecpro

System Ltd and also below that of other construction players. However, given that the

company is taking on more comprehensive BoP projects, we believe its inventory days may

increase slightly and, so will working capital though it will still remain below the peer average.

77124

178217 213

252283 305 311 335

0

50

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400

FY07

FY08

FY09

FY10

FY11

E

FY12

E

FY13

E

FY14

E

FY15

E

FY16

E

(Rs bn)

Construction investment

One of the lowest working

capital days in the industry


14

Also, the company’s fixed asset turnover is one of the highest which results in high capital

efficiency and consequently higher asset turnover.

Figure 12: Comparatively lower working capital Figure 13: Technofab has lower gearing among peers


Comparable financial performance vis-à-vis peers We have analysed and compared Technofab with other similar EPC players on five important

parameters which we believe are the most important while analysing the EPC companies.

These are i) order book, ii) working capital, iii) debt-equity and iv) order book diversification

and capabilities in various segments. Compared to its comparable peers, Technofab has

healthy order book-to-sales ratio of 2.8x vs. an average of 2.1x for peers. The company also

has lower gearing of 0.1x and working capital days of 105 (including loans and advances) in

FY11. We present below the detailed comparison.

Table 10: Positioning of EPC players

Company Capabilities and order book diversification

OB/sales (x)

TTM Working capital

days* (FY11) D/E (x) (FY11)

Comparable Players Technofab Power, water, oil & gas, Industry Infra 2.8 105 0.1 Sunil Hitech Power 2.2 240 1.2 Tecpro Systems Power 2.0 176 1.1 Hindustan Dorr-Oliver

Power and water 1.7 140 1.1

Similar Players Pratibha Industries

Water, roads, urban infra 4.8 156 0.9

IVRCL Infra Water , oil & gas, power, urban infra 4.6 168 1.4 Simplex Infrastructure

Power transmission, urban infra, industrial 2.9 114 1.5

Era Infra Power , roads, industrial infra and urban infra 1.8 246 1.9 MBL Infra Roads, railways and urban infra 2.1 146 1.0

*Including loans and advances


21 58 60 32 99119 250

194

102250

88

110 117

187

222

196

105

240

176

140

-

50

100

150

200

250

300

-

100

200

300

400

500

600

700

Technofab Sunil Hitech Tecpro System Hind DoroliverInventory days Debtor daysLoans & Adv days Creditor daysWorking capital days (RHS)

1.0

0.2

0.5 0.4

0.1

0.7 0.6

1.2

1.4

1.21.1

1.31.4

1.11.2

0.20.3

0.1

0.8 1.1

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

FY07 FY08 FY09 FY10 FY11

(x)

Technofab Sunil HitechTecpro System Hind Doroliver

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We also present below a comparison across various similar EPC companies in terms of their

financial performance on parameters like revenue and growth, margins and return on capital.

Technofab’s financial performance in the past two years is in line with comparable peers;

however, it has outperformed other EPC players in the industry.

Table 11: Financial performance comparison

Company

Revenue (Rs mn) Revenue growth EBITDA margins ROE

FY11 FY10 (FY08-11) FY11 FY10 FY11 FY10

Comparable Players Technofab 2,908 2,016 53% 14.5 16.8 27.0 46.5 Sunil Hitech 8,055 7,675 36% 14.2 11.9 14.6 10.8 Tecpro Systems 19,673 14,549 57% 16.7 15.2 26.6 31.8 Hindustan Dorr-Oliver 10,722 8,775 52% 12.3 8.1 16.0 27.7 Similar Players Pratibha Industries 12,681 10,072 31% 13.8 14.4 19.2 22.6 IVRCL Infra 68,376 58,318 21% 11.1 11.9 8.2 11.4 Simplex Infrastructure 48,753 45,524 20% 9.78 9.9 12.1 12.6 Era Infra 37,551 33,524 31% 19.4 19.8 13.8 20.4 MBL Infra 10,016 6,377 50% 13.7 14.4 24.4 23.0



16

Key risks

Execution risk Technofab has been traditionally executing smaller projects with ticket size of Rs 80-90 mn.

However, off late, the company has been receiving orders of higher ticket size, Rs 1-1.5 bn,

which require relatively more technical expertise and are complex in nature. We believe the

company will find it challenging to execute these projects given the size. However, given the

company’s execution track record, we believe that chances of slippage are low.

Decrease in government spending could affect order intake

Although we believe that the thrust on infrastructure spending by the government will

continue, any decrease in spending could affect order intake and our growth assumptions.

Also, any slowdown in momentum in order awards from the African countries, where the

company is largely focussing, could adversely impact our growth assumptions.

Absence of price escalation clause in domestic orders Technofab undertakes turnkey domestic orders mostly on fixed price basis – currently only

20% of the total domestic orders have escalation clauses. Even for those orders that have a

built-in provision for price increases, if the increase is more than what has been estimated it

could lead to pressure on margins.

Slowdown in project awards could

have an adverse impact on our

growth assumptions

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Financial Outlook

Revenues to grow at three-year CAGR of 26% to Rs 5.8 bn in FY14 Technofab’s revenue has grown at a CAGR of 53% to Rs 2.9 bn during FY08-FY11 given the

strong growth in order intake. We expect revenues to grow at a three-year CAGR of 26% to

Rs 5.8 bn in FY14, largely due to the recent strong orders inflows and expected new orders.

Of our total revenue assumptions for FY13 and FY14, execution from the current order book

is expected to contribute ~80% and 60%, respectively, while the remaining is expected from

new orders and their execution.

Figure 14: Revenues to register three-year CAGR of 26%

Source: Company, CRISIL Research estimates

EBITDA margins expected to improve marginally Technofab’s EBITDA margin for 9MFY12 was 12.7%, down 180 bps from last year’s reported

margins, due to increase in raw material costs in domestic projects; note these projects do not

have any escalation clause. We expect EBITDA margin to improve by 20 bps to 13% in FY13

due to increasing contribution from overseas projects and remain stable in FY14. Although

margins in overseas projects are higher by 150 bps, we believe this may not materialise

entirely as we expect some increase in cost given that this is the first time that the company is

executing such large projects and there could be slippages.

1.5 2.0 2.9 3.7 4.7 5.8

83.8%

34.8%

44.2%

26.2% 29.4%21.6%

0%

20%

40%

60%

80%

100%

0

1

2

3

4

5

6

7

FY09 FY10 FY11 FY12E FY13E FY14E

(Rs bn)

Revenue y-o-y growth (RHS)

EBITDA margins expected to

increase by 20 bps in FY13 and

remain stable in FY14


18

Figure 15: EBITDA margins expected to improve marginally


PAT to grow at a three-year CAGR of 18%; EPS to increase to Rs 40 in FY14 We expect PAT to grow at a three-year CAGR of 18% to Rs 419 mn in FY14 driven by

revenue growth. Although revenues are expected to increase at 26%, our PAT growth

estimate is lower due to higher depreciation on account of the capex that the company is likely

to incur out of the IPO proceeds. We expect EPS to register a similar 18% growth to Rs 40.0

in FY14.

Figure 16: PAT and PAT margin Figure 17: EPS and EPS growth

Source: Company, CRISIL Research estimates Source: Company, CRISIL Research estimates

RoCE and RoE to decline but remain healthy RoCE is expected to decline to 28.6% in FY14 from 36.1% in FY11 due to anticipated lower

profitability. Due to increase in equity post IPO in FY10 and lower asset turnover, we expect

RoE to decline from 27% in FY11 to 19.1% in FY14.

219 339 421 468 617 751

14.6%

16.8%

14.5%

12.8% 13.0% 13.0%

0%

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4%

6%

8%

10%

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16%

18%

0

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800


(Rsmn)

EBITDA EBITDA margin (RHS)

117 192 258 309 363 419

7.8%

9.5%8.9%

8.4%7.6% 7.3%

0%

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PAT PAT margin (RHS)

16 26 25 30 35 40

122.0%

63.3%

-3.7%

19.9% 17.2% 15.6%

-20%

0%

20%

40%

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100%

120%

140%

0

5

10

15

20

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(Rs)

EPS y-o-y growth (RHS)

EPS to increase from Rs 24.6 in

FY11 to Rs 40.0 in FY14

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Figure 18: RoE and RoCE to remain healthy despite the decline


56.3 55.1

36.1

25.327.7 28.6

43.846.5

27.0

20.0 19.6 19.1

5

15

25

35

45

55

65


(%)

RoCE RoE


20

Management Overview

CRISIL's fundamental grading methodology includes a broad assessment of management

quality, apart from other key factors such as industry and business prospects, and financial

performance.

Promoter has strong experience Technofab has an experienced management team headed by Mr Avinash Gupta who is the

chairman and promoter of the company. Mr Avinash has a B.Sc degree and has more than 51

years of experience in the engineering industry. Mr Avinash is supported by his two sons, Mr

Arjun Gupta and Mr Nakul Gupta. Mr Arjun Gupta holds a bachelor’s degree in mechanical

engineering and has been associated with the company since 1995. He takes care of project

execution and sales & marketing. Mr Nakul Gupta holds a B.Sc. (marketing & psychology)

degree and has been associated with the company for the past 18 years. He is responsible for

finance & accounting and banking activities of the company. He also takes care of the

overseas business.

Taking a balanced and cautious approach to growth The management has adopted a balanced and cautious approach to expand its business and

have not resorted to bidding aggressively for projects to attain top line growth. The

management focuses on taking profitable orders and timely execution of projects. While the

management has been quick in identifying overseas opportunities to increase its exposure to

these markets, it has moved ahead with adequate caution - bidding for and taking only those

projects which are funded by international financial institutions.

Second line of management needs to be strengthened; internal processes and controls need to be tightened Currently, most of the operations and activities are handled by Mr Avinash Gupta and his two

sons. Although there are a couple of key people in the second line, we believe the second line

of management requires strengthening given that the company is in a rapid growth phase and

diversifying into various overseas markets. However, based on our interactions, we

understand that the company is taking adequate steps to strengthen the team further. The

company is also planning to put in place an ERP system to efficiently manage the operations

as the company gears up for the next level of growth. Although Mr. Nakul Gupta – Director –

takes care of the finance-related functions, we believe the company needs a dedicated CFO.

The management is aware of the same and are looking for a suitable person.

Technofab management

has more than three

decades of experience

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Corporate Governance

CRISIL’s fundamental grading methodology includes a broad assessment of corporate

governance and management quality, apart from other key factors such as industry and

business prospects, and financial performance. In this context, CRISIL Research analyses the

shareholding structure, board composition, typical board processes, disclosure standards and

related-party transactions. Any qualifications by regulators or auditors also serve as useful

inputs while assessing a company’s corporate governance.

Overall, corporate governance at Technofab meets the desired levels supported by

reasonable board practices and an independent board.

Board composition

Technofab’s board consists of six members, of whom three are independent directors, which

meets the requirement under Clause 49 of SEBI’s listing guidelines. The directors are well

qualified and have reasonably strong industry experience. The independent directors have a

fairly good understanding of the company’s business and its processes.

Board’s processes The company has all the necessary committees – audit, remuneration, investor grievance and

finance - in place to support corporate governance practices. The audit committee is chaired

by an independent director, Mr. Arun Mitter, CA who has over 20 years of experience in

finance and corporate matters.

The company have all the required committees in place. As per our interaction with the

independent directors, we believe the board’s processes need to be strengthened. However,

we understand the company is taking adequate steps in this direction.

Disclosure standards need to be improved The company needs to improve its disclosure level; its disclosure levels related to order book

and order inflows, which are the key drivers of any EPC company, are not adequate. For

instance, the company has not reported either to the stock exchange or on its website the

recent order award of Rs 1,600 mn from Bangladesh. The management indicated that they

only disclose orders which are of a reasonable size rather than mention all the small orders.

However, given the size of the order from Bangladesh (~15% of the order book), we believe

this is something which was material and should have been disclosed. The company holds

the con-calls regularly where it shares this information along with other details.

Investments in shares and securities The company has invested ~Rs 8.4 mn in quoted shares and securities in FY10. However, the

magnitude of the amount is small compared to the overall balance sheet of the company.

Disclosure level can be

improved further


22

Valuation Grade: 5/5

We have valued Technofab using the price-to-earnings (P/E) method. We are initiating

coverage with fair value of Rs 200 per share. At the current market price, we have a valuation

grade of 5/5. This grade indicates that the market price has strong upside.

Valuation of contracting business We have valued Technofab based on the P/E multiple. We have assigned a multiple of 5x to

FY14 EPS of Rs 40.0. The assigned multiple is lower compared to what we have assigned to

some of the other EPC companies that we have under coverage but this is to factor in the

risks of overseas markets where the company has sizeable exposure (51% of the current

order book).

Valuation comparison

Company CMP Mkt cap (Rs mn)

PE (x) P/BV (x) RoE (%)

FY11 FY12E FY13E FY11 FY12E FY13E FY11 FY12E FY13E

TechnoFab* 149 1,563 6.1 5.1 4.3 1.1 0.9 0.8 27.0 20.0 19.6 Sunil Hitech 72 870 3.6 6.0 5.6 0.6 0.3 0.3 14.6 5.9 5.9 Tecpro System 169 8,530 6.0 5.6 4.9 1.3 1.1 0.9 26.6 20.8 19.2 Hindustan Dorr-Oliver 34 2,440 6.3 14.7 8.3 0.9 1.0 0.9 16.0 6.5 10.8 Average 5.5 7.9 5.8 1.0 0.8 0.7 21.0 13.3 13.9 Era Infra* 137 24,938 11.3 12.7 12.8 1.4 1.2 1.1 13.8 10.5 9.3 IVRCL Infra 57 15,160 7.9 13.4 10.1 0.6 0.6 0.6 8.2 4.6 5.8 Simplex Infra 224 11,080 8.9 11.0 8.3 1.0 0.9 0.9 12.1 8.8 10.9 Pratibha Ind 47 4,700 6.0 5.8 4.8 1.0 0.9 0.6 19.2 15.9 16.6 MBL * 172 3,012 4.9 6.2 4.7 1.1 0.7 0.5 24.4 14.0 13.1 Average 6.8 8.5 7.0 0.9 0.8 0.7 17.8 12.1 12.7 Average 6.1 8.2 6.4 0.9 0.8 0.7 19.4 12.7 13.3

*CRISIL Research estimates One-year forward P/E band One-year forward EV/EBITDA band

Source: NSE, CRISIL Research Source: NSE, CRISIL Research

0

50

100

150

200

250

300

350

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr-

11M

ay-1

1

Jun-

11Ju

l-11

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb

-12

(Rs)

Technofab 1x 3x 5x 7x 9x

0

500

1,000

1,500

2,000

2,500

3,000

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11F

eb-1

1M

ar-1

1

Apr-

11M

ay-1

1Ju

n-11

Jul-1

1A

ug-1

1S

ep-1

1O

ct-1

1N

ov-1

1D

ec-1

1Ja

n-12

Feb

-12

(Rs mn)

EV 3x 4x 5x 6x

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P/E – premium/discount to NIFTY P/E movement

Source: NSE, CRISIL Research Source: NSE, CRISIL Research

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

Jul-1

0A

ug-1

0S

ep-1

0O

ct-1

0

Nov

-10

Dec

-10

Jan-

11F

eb-1

1M

ar-1

1

Apr-

11M

ay-1

1

Jun-

11Ju

l-11

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb

-12

Premium/Discount to NIFTY Median premium/discount to NIFTY

0

2

4

6

8

10

12

14

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb-

11M

ar-1

1

Apr

-11

May

-11

Jun-

11

Jul-1

1

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb-

12

(Times)

1yr Fwd PE (x) Median PE

+1 std dev

-1 std dev


24

Company Overview

Delhi-based Technofab, incorporated in 1971, has evolved from a piping, valves and pressure

vessels fabricator to a comprehensive Balance of Plant (BoP) provider. The company is

engaged in the business of providing engineering procurement and construction (EPC)

services and executing a wide range of BoP and electro-mechanical projects on a complete

turnkey basis. It provide services to domestic and overseas markets across a number of

industrial and infrastructure sectors which includes power, oil & gas, water & waste water

treatment and other industrial & infrastructure sectors. The company has a presence in

Ghana, Ethiopia, Kenya, Zambia, Fiji, Mozambique and many other south-east African

countries.

Key milestones

1971 Incorporated as a private limited company

1975 Received large order from SAIL for yard piping contract

1984 Secured low pressure piping contract from NTPC for 2x500 MW thermal power plant, Singrauli

1986 Commenced manufacturing of pressure vessels, heat exchangers, filtration equipment, large dia pipes and pipe fittings, prefabricated tanks and vessels

1992 Established a full scale in-house Design & Engineering facility at Faridabad, Haryana

1993 Executed our first overseas contract for piping from Kenya Power and Lighting Company for a geothermal project.

1996 Awarded first contract for a power plant for setting up a liquid waste treatment plant at NTPC‘s Rihand Thermal Power Plant

2002 Discontinued in-house fabrication

2003 Secured overseas orders for rehabilitation of water treatment plants and pumping station in the copper belt area, Zambia

2007 Secured its first order in Nuclear Power segment worth Rs.351 mn for raw material and service water package

2009 Secured its first order in Power Distribution from WBSEDC worth Rs.377 mn

2010 Acquisition of Rivu Infrastructural Developers Private Limited (RIDPL), a company engaged in sub-station erection and electrical work

2010 Came out with an IPO

2011 Acquired Woodlands Instrumentation Pvt Ld. The company provides turnkey

instrumentation and controls as well as marketing and logistic support services to

customers like Oil India, ONGC, GSFC, IPCL, BPCL, IOCL

2011 Listed in Forbes Top 200 under a billion dollars companies in Asia

2011 Received first ever comprehensive BoP order from Bangladesh for 100 MW liquid/gas power plant


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Annexure: Financials

Source: CRISIL Research

Income statement 53% 18% Balance Sheet(Rs mn) FY09 FY10 FY11 FY12E FY13E FY14E (Rs mn) FY09 FY10 FY11 FY12E FY13E FY14EOperating income 1,496 2,016 2,908 3,671 4,749 5,777 LiabilitiesEBITDA 219 339 421 468 617 751 Equity share capital 75 75 105 105 105 105 EBITDA margin 14.6% 16.8% 14.5% 12.8% 13.0% 13.0% Reserves 247 427 1,306 1,577 1,906 2,286 Depreciation 10 14 12 24 33 43 Minorities - - - - - - EBIT 208 325 409 444 584 708 Net w orth 322 502 1,411 1,682 2,011 2,391 Interest 32 45 57 59 81 101 Convertible debt - - - - - - Operating PBT 176 281 352 386 503 606 Other debt 162 194 158 258 268 278 Other income 4 13 29 83 46 29 Total debt 162 194 158 258 268 278 Exceptional inc/(exp) (0) - (47) (11) - - Deferred tax liability (net) 0 2 5 5 5 5 PBT 180 293 335 457 550 635 Total liabilities 484 698 1,575 1,945 2,284 2,675 Tax provision 63 102 123 159 187 216 AssetsMinority interest - - - - - - Net f ixed assets 42 55 114 197 273 300 PAT (Reported) 117 192 212 298 363 419 Capital WIP - - - - - - Less: Exceptionals (0) - (47) (11) - - Total fixed assets 42 55 114 197 273 300 Adjusted PAT 117 192 258 309 363 419 Investments - - 25 25 25 25

Current assetsRatios Inventory 45 36 134 251 390 475

FY09 FY10 FY11 FY12E FY13E FY14E Sundry debtors 319 575 790 996 1,392 1,741 Grow th Loans and advances 322 420 826 1,028 1,330 1,618 Operating income (%) 83.8 34.8 44.2 26.2 29.4 21.6 Cash & bank balance 241 111 724 652 441 432 EBITDA (%) 122.8 55.0 24.3 11.2 31.9 21.6 Marketable securities 2 3 348 43 43 43 Adj PAT (%) 122.0 63.3 34.7 19.9 17.2 15.6 Total current assets 929 1,145 2,822 2,970 3,596 4,309 Adj EPS (%) 122.0 63.3 (3.7) 19.9 17.2 15.6 Total current liabilities 487 502 1,387 1,248 1,610 1,959

Net current assets 443 642 1,436 1,722 1,986 2,350 Profitability Intangibles/Misc. expenditure - - - - - - EBITDA margin (%) 14.6 16.8 14.5 12.8 13.0 13.0 Total assets 484 698 1,575 1,945 2,284 2,675 Adj PAT Margin (%) 7.8 9.5 8.9 8.4 7.6 7.3 RoE (%) 43.8 46.5 27.0 20.0 19.6 19.1 Cash flowRoCE (%) 56.3 55.1 36.1 25.3 27.7 28.6 (Rs mn) FY09 FY10 FY11 FY12E FY13E FY14ERoIC (%) 70.6 60.1 48.9 43.3 31.8 27.3 Pre-tax prof it 180 293 382 469 550 635

Total tax paid (62) (100) (120) (159) (187) (216) Valuations Depreciation 10 14 12 24 33 43 Price-earnings (x) 9.5 5.8 6.1 5.1 4.3 3.7 Working capital changes (36) (329) 165 (664) (475) (373) Price-book (x) 3.5 2.2 1.1 0.9 0.8 0.7 Net cash from operations 93 (122) 438 (331) (79) 90 EV/EBITDA (x) 4.7 3.5 1.5 2.4 2.2 1.8 Cash from investmentsEV/Sales (x) 0.7 0.6 0.2 0.3 0.3 0.2 Capital expenditure (31) (27) (70) (107) (109) (70) Dividend payout ratio (%) 6.4 5.9 7.4 8.0 8.0 8.0 Investments and others 5 (1) (370) 305 - - Dividend yield (%) 0.7 1.0 1.0 1.5 1.9 2.1 Net cash from investments (26) (28) (441) 198 (109) (70)

Cash from financingB/S ratios Equity raised/(repaid) - - 672 - - - Inventory days 14 8 21 30 36 36 Debt raised/(repaid) 120 32 (36) 100 10 10 Creditors days 118 84 182 117 117 117 Dividend (incl. tax) (9) (13) (18) (28) (34) (39) Debtor days 78 104 99 99 107 110 Others (incl extraordinaries) (0) 1 (2) (11) - - Working capital days 44 66 56 69 97 107 Net cash from financing 111 20 616 61 (24) (29) Gross asset turnover (x) 30.6 26.3 25.0 18.7 15.6 14.7 Change in cash position 178 (130) 613 (72) (211) (9) Net asset turnover (x) 47.7 41.6 34.4 23.6 20.2 20.2 Closing cash 241 111 724 652 441 432 Sales/operating assets (x) 47.7 41.6 34.4 23.6 20.2 20.2 Current ratio (x) 1.9 2.3 2.0 2.4 2.2 2.2 Quarterly financialsDebt-equity (x) 0.5 0.4 0.1 0.2 0.1 0.1 (Rs mn) Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12Net debt/equity (x) (0.3) 0.2 (0.6) (0.3) (0.1) (0.1) Net Sales 732 572 1,242 526 938 966 Interest coverage 6.4 7.3 7.2 7.6 7.2 7.0 Change (q-o-q) 106% -22% 117% -58% 78% 3%

EBITDA 104 102 151 68 119 122 Per share 52% 18% Change (q-o-q) 79% -2% 48% -55% 75% 3%

FY09 FY10 FY11 FY12E FY13E FY14E EBITDA margin 14% 18% 12% 13% 13% 13%Adj EPS (Rs) 15.6 25.5 24.6 29.5 34.6 40.0 PAT 65 54 110 53 76 86 CEPS 17.0 27.4 25.7 31.8 37.8 44.1 Adj PAT 65 54 111 53 76 86 Book value 42.9 66.9 134.5 160.3 191.7 227.9 Change (q-o-q) 105% -17% 106% -52% 43% 14%Dividend (Rs) 1.0 1.5 1.5 2.3 2.8 3.2 Adj PAT margin 9% 9% 9% 10% 8% 9%Actual o/s shares (mn) 7.5 7.5 10.5 10.5 10.5 10.5 Adj EPS 8.7 7.2 14.8 7.1 10.1 8.2


26

Focus Charts Investments in power segment to double Well-diversified order book


Order inflows to decline in FY13 PAT and PAT margin


RoE and RoCE to decline, but remain healthy Shareholding pattern over the quarters


3,526

6,706 1,051

1,807

739

1,821

-

2,000

4,000

6,000

8,000

10,000

12,000

FY07-11 FY12E-16E

(Rs bn)

Generation Distribution TransmissionConventional

power 43%

Nuclear Power 2%

Water 23%Oil & Gas

14%

Industrial Infra 14%

Electrical 4%

2.1 2.7 3.1 4.6 8.0

6.0

7.2

0%

28%

13%

48%

74%

-25%

20%

-40%

-20%

0%

20%

40%

60%

80%

0

1

2

3

4

5

6

7

8

9

FY08 FY09 FY10 FY11 FY12E FY13E FY14E

(Rs bn)

Order Inflow y-o-y growth ( RHS)

117 192 258 309 363 419

7.8%

9.5%8.9%

8.4%7.6% 7.3%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0

50

100

150

200

250

300

350

400

450


(Rsmn)

PAT PAT margin (RHS)

56.3 55.1

36.1

25.327.7 28.6

43.846.5

27.0

20.0 19.6 19.1

5

15

25

35

45

55

65


(%)

RoCE RoE

39.2% 40.3% 40.5% 41.4%

13.4% 12.9%5.8% 5.8%

6.6% 6.5%

40.8% 40.2%53.7% 52.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Mar-11 Jun-11 Sep-11 Dec-11

Promoter FII DII Others

CRISIL Research Team

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