Sunil Hitech Engineers
Engineered for hi-growth
With order book of Rs 800 crore and strong visibility in power sector investments, the company will maintain its high growth trend
| Buy | Sunil Hitech Engineers |
| BSE Code | 532711 |
| NSE Code | SUNILHITEC |
| Bloomberg | SUHE@IN |
| Reuter | SUHT.BO |
| 52-week High/Low | Rs 415 / 67 |
| Current Price | Rs 260 (as on 5th March 2008) |
Sunil Hitech Engineers (SHEL) specializes in Fabrication, Erection, Testing & Commissioning of Thermal Power Plants with high precision quality and timeliness.
The company provides different types services to players in power and steel sector. For thermal power plant it provides fabrication & erection of super structures up to 660 MW. It also takes up civil works for thermal power stations up to 500 MW. Besides this it is involved in the fabrication and erection of steel chimney flues. The company also takes turnkey contract for fuel oil systems including tanks. For Hydro Power plants it takes up civil and hydro mechanical works. In transmission and distribution business the company takes up erection of EHV transmission lines & substations up to 132 kV, 200 kV, 400 kV. The company also provides operation and maintenance related services to power plants. The services include renovation of boilers and auxiliaries, repair, modification and rehab for utility boilers of 210/500 MW, pressure parts, milling system, rotating parts, ducting, HP/LP piping work. Apart from power sector the company is also taking up fabrication and erection of technological structures for steel plants. The manufacturing business of company includes Design and Supply of Reheater Coils, LTSH Coils, Economizer Coils, Pressure Parts Bends, Water Walls, Structures, Tanks and Vessels, Heaters, Piping, Supply Boiler Pressure Parts Tubes for 210/500 MW.
Aggressive capacity expansion in power generation sector
Looming power shortages have led the government to focus intently on power generation. The Government has set an ambitious target of providing ‘Power for All’ during the Eleventh Plan. Thus, in order to achieve this goal about 100,000 MW of fresh capacity addition is targeted by 2012. Additionally, 28,000 MW is expected to be added by seven Ultra Mega Power Projects (UMPP). The annual peak demand-supply gap (peak shortage) has risen to about 11% in 2006 from 7% in 2005. With companies like NTPC and Reliance Energy expanding thermal power plant capacities, SHEL is well positioned to capitalize on this increase in demand. SHEL has a presence in states like Madhya Pradesh, Uttar Pradesh, Maharashtra, Tamil Nadu and Haryana. SHEL has already worked on projects of 9,850 MW and is currently working on projects in one way or another in excess of 17,000 MW.
SHEL has capabilities to cater to both small and big power stations ranging from 5MW to 660MW. SHEL possesses hi tech machines and technical know how which has helped it to bag the largest single unit contract (660MW) contract from NTPC. About 50% of the work on this Rs 35 crore order is already complete.
Further, the government has continued with its policy of boosting the power sector with the announcement of two more Ul;tra Mega Power Projects (UMPP) and five other power projects in the 2007-08 Budget. In addition, there is a provision to setup merchant power plants through the participation of private developers in transmission projects. This will increase the pace of power distribution projects due to easy availability of funds. SHEL has already made a joint bid for the BOP (Balance of Plant) work for the Mundra UMPP. Each UMPP, of 4000 MW has potential BOP work of around Rs 640 crore. This stands to be huge untapped opportunity for SHEL.
Moreover, SHEL has a presence across the entire power supply chain from power generation to power transmission and distribution. Recently, SHEL has successfully forayed into the setting up of an EHV substation and control room for transmission and distribution in the power sector upto 400kV. SHEL entered the T&D space about a year and a half ago which is a marked step because in case of power generation projects, SHEL used to merely carry out the engineering work based on drawings / designs provided by its clients. However, in case of T&D orders, SHEL carries out all the work from drawing to the final execution of the plan. In addition, SHEL also undertakes overhauling and maintenance (O&M) works at power plants. This includes the renovation of boilers and auxiliaries; repair, modification and rehab for utility boilers, pressure parts, rotating parts etc. There is a lot of potential in the O&M space as well because a lot of India’s power plants are old and the average life of a thermal power plant is about 20 years. Thus, SHEL has emerged as a complete turnkey player in the power supply chain.
Expanding to cater to other industries
More than 60% of SHEL’s order book is from the thermal power sector while the rest comes from other sectors such as transmission & distribution of power, hydropower, steel, and overhauling and maintenance. SHEL has been awarded a Rs 45 crore project to construct three hydropower plants for an American company, Dodson-Lindblom in Himachal Pradesh. SHEL has already commenced work on the same and expects to complete it in the next one and a half years.
SHEL has recently forayed into the steel sector. In this regard, SHEL has successfully completed its orders from the steel sector for the fabrication of steel plants and the setting up of sinter plants. This includes the order from JSW Steel worth Rs 12.95 crore and another one from Rashtriya Ispat Nigam Ltd for Rs.25.32 crore. With the completion of these orders, SHEL has gained the necessary experience to take on more orders from the steel sector and thus diversify its business model.
Thus, even though SHEL is predominantly present in the thermal power generation sector it is slowly de-risking its business model by increasing its presence in other fast growing sectors.
Diversified client base
SHEL’s clients include a mix of government and private companies. Over the years, SHEL has built a direct relationship with its clients and as a result has the status of a primary contractor. The list of a few clients include National Thermal Power Corporation, Bharat Heavy Electricals, Maharashtra State Power Generation Company, Reliance Energy, Madhya Pradesh State Elect Board, Jindal Steel & Power, Shandong Elec Power Const Corp (China), Chattisgarh State Elect Board, Dodson-Lindblom International Inc (USA), Sterlite Inds (BALCO) Rashtriya Ispat Nigam, Rajasthan Vidyut Utpadan Nigam.
Strong order book
Order book as on 31st Jan’08 stand at Rs 800 crore (Rs 500 crore last year). Further break up of order book:-Power Generation (Balance of Plant (BOP)) Rs 640 crore, Power Transmission & Distribution Rs 90 crore, Steel Rs 40 crore, Hydro plant Rs 35 crore.
Of the total order of Rs 640 crore from power generation, nearly Rs 200 crore orders are from BHEL for commissioning and erection of the boilers, turbines and generators.
Order book likely to remain strong
The order book position of the company is expected to remain firm on account of large size investment taking place in the power utility sector. The total installed generation capacity of India is 1.3 lakh MW and another 1 lakh MW of generation capacity is expected to be added in the next five–eighth years. Such a kind of capacity addition leaves rosy outlook for SHEL. For every 1 MW of generation projects the company has an opportunity to bag orders in the range of Rs 30 lakh to Rs 2 crore. The company is bidding for the contracts from the recently awarded Ultra Mega Power Project to Reliance Energy and Tata Power. It is expecting to bag large size orders from these projects. SHEL is also expecting Rs 200 crore of orders in the next few months.
Funding to meet increasing demands
SHEL caters to different aspects of the requirements of setting up a power plant such as the fabrication, erection, testing and commissioning of various structures of a thermal power plant. Broadly, power plants need 3 essential components collectively known as ‘BTG’ – Boiler, Turbine and Generator. However, these components by themselves cannot facilitate the production of power. They need a range of electrical, mechanical, control and instrumentation systems and civil buildings to become a complete power plant. These other components comprise the Balance of Plant (BOP) package. Different types of power plants have different BOP packages.
Over the years SHEL has executed wide range of contracts for the power plant. With such a kind of experience the company is now focusing on Balance of Plant (BOP). This means that it is now capable of bagging order which includes providing systems, components and structures that comprise a complete power plant. Currently SHEL is like a sub-contractor for constructing a portion of power plant but with Balance of Plant it would bag orders for comissioning almost entire power plant. SHEL has the capability to execute upto 80% of the Balance of Plant work for a power plant. Currently the order includes 20% material and 80% execution but in case of balance of plant materials would be 70% and execution would be 30%. The company expects higher margins in Balance of Plants related projects. Thus we expect that the company would bag large size orders in future with better margins.
In order to meet the large working capital requirements for larger BOP works. It has already raised funds to fuel its growth. In the month of January, SHEL has raised Rs 81 crore through the Qualified Institutional Players (QIP) route. A total of 22.50 lakh shares (face value of Rs 10/-) were placed with five foreign and domestic institutional investors at Rs 360 per share.
Following this placement, the equity share capital of the company has increased to Rs 12.28 cr from the existing Rs 10.03 crore. Further, SHEL had also issued 38 lakh warrants in August 2007 to the promoters and non-promoters at a conversion price of Rs 146/- share with a conversion time of 18 months. Thus the fully diluted equity will be Rs. 16.08 crore.
SHEL plans to deploy the money raised through the recent placement to buy cranes / equipment worth about Rs. 30 – 40 crore so that it is well-equipped to bid for the Ultra Mega Power Projects and invest about Rs. 15 - 20 crore in its subsidiary Sunil Hi-Tech Engineers & Manufactures Ltd (SHEML) that manufactures pressure parts and for working capital requirements.
Growing at hi-speed
For the quarter ended December 2007, the company registered 121% rise in its revenues to Rs 79.10 crore. OPM improved by 310 basis points from 12.2% to 15.3% taking OP up by 178% to Rs 12.12 crore. PBT rose 229% to Rs 7.76 crore and PAT was up 230% to Rs 5.05 crore.
For the nine month ended December 2007, the company registered 97% rise in its revenues to Rs 193.94 crore. OPM improved by 530 basis points from 10.7% to 16.0% taking OP up by 196% to Rs 31.05 crore. PBT rose 219% to Rs 20.90 crore and PAT was up 220% to Rs 13.72 crore.
High growth rates to continue
We expect the company to register sales and net profit of Rs 280.95 crore and Rs 19.54 crore respectively in FY 2008. This means sales would rise by 94% and PAT by 158% in FY 2008 over FY 2007.
In FY 2009, sales are expected to further rise by 40% in FY 2009 to Rs 393.33 crore and PAT is expected to go up by 51% to Rs 29.54 crore.
On fully diluted equity of Rs 16.05 crore and face value of Rs 10 per share, EPS for FY 2008 works out to Rs 12.2. For FY 2009 it works out to 18.4. The share price trades at Rs 260. While the P/E on FY 2008 EPS works out to 21.4, it falls to 14.1 on FY 2009 EPS.
| | 0403 (12) | 0503 (12) | 0603 (12) | 0703 (12) | 0803 (12P) | (0903 12P) |
| Net Sales | 35.45 | 67.94 | 132.74 | 144.8 | 280.95 | 393.33 |
| OPM % | 9.0 | 10.0 | 9.8 | 12.4 | 16.0 | 16.0 |
| OP | 3.18 | 6.78 | 13.06 | 17.9 | 44.97 | 62.93 |
| Other inc | 0.29 | 0.83 | 0.44 | 1.58 | 1.58 | 2.00 |
| | | | | | | |
| Raw material cost | 4.21 | 10.17 | 62.95 | 52.23 | | |
| RM as a % | 11.9% | 15.0% | 47.4% | 36.1% | | |
| Power cost | 0.49 | 0.85 | 0.1 | 0.09 | | |
| Power as a % | 1.4% | 1.3% | 0.1% | 0.1% | | |
| Employee cost | 2.96 | 4.14 | 4.03 | 5.61 | | |
| Employee as a % | 8.3% | 6.1% | 3.0% | 3.9% | | |
| Manufacturing exp | 22.12 | 42.83 | 46.51 | 58.79 | | |
| Manufacturing as a % | 62.4% | 63.0% | 35.0% | 40.6% | | |
| S&A exp | 2.34 | 3.39 | 6.21 | 10.66 | | |
| S&A as a % | 6.6% | 5.0% | 4.7% | 7.4% | | |
| | | | | | | |
| PBIDT | 3.47 | 7.61 | 13.5 | 19.48 | 46.55 | 64.93 |
| Interest | 0.73 | 1.46 | 2.35 | 3.30 | 8.65 | 10.00 |
| PBDT | 2.74 | 6.15 | 11.15 | 16.18 | 37.90 | 54.93 |
| Dep. | 1.24 | 2.05 | 2.89 | 4.41 | 8.18 | 10.18 |
| PBT | 1.5 | 4.1 | 8.26 | 11.77 | 29.72 | 44.75 |
| Tax | 0.82 | 1.80 | 2.67 | 4.20 | 10.18 | 15.22 |
| PAT | 0.68 | 2.3 | 5.59 | 7.57 | 19.54 | 29.54 |
| EPS* | 0.4 | 1.4 | 3.5 | 4.7 | 12.2 | 18.4 |
| * Annualised on fully diluted equity of Rs 16.05 crore. | ||||||
| Sunil Hitech Engineers: Results |
| | 0712(03) | 0612(03) | Var. (%) | 0712(09) | 0612(09) | Var. (%) | 0703(12) | 0603(12) | Var. (%) |
| Sales | 79.10 | 35.85 | 121 | 193.94 | 98.47 | 97 | 144.8 | 132.74 | 9 |
| OPM % | 15.3 | 12.2 | | 16.0 | 10.7 | | 12.3 | 9.8 | |
| OP | 12.12 | 4.36 | 178 | 31.05 | 10.49 | 196 | 17.8 | 13.04 | 37 |
| Other inc. | 0.47 | 0.18 | 161 | 1.08 | 1.11 | -3 | 1.58 | 0.44 | 259 |
| PBIDT | 12.59 | 4.54 | 177 | 32.13 | 11.60 | 177 | 19.38 | 13.48 | 44 |
| Interest | 2.52 | 1.06 | 138 | 5.55 | 2.09 | 166 | 3.30 | 2.35 | 40 |
| PBDT | 10.07 | 3.48 | 189 | 26.58 | 9.51 | 179 | 16.08 | 11.13 | 44 |
| Dep. | 2.31 | 1.12 | 106 | 5.68 | 2.95 | 93 | 4.41 | 2.89 | 53 |
| PBT | 7.76 | 2.36 | 229 | 20.90 | 6.56 | 219 | 11.67 | 8.24 | 42 |
| Tax | 2.82 | 0.85 | 232 | 7.41 | 2.35 | 215 | 4.14 | 2.83 | 46 |
| Deferred Tax | -0.11 | -0.02 | 450 | -0.23 | -0.08 | 188 | -0.04 | -0.18 | -78 |
| PAT | 5.05 | 1.53 | 230 | 13.72 | 4.29 | 220 | 7.57 | 5.59 | 35 |
| EPS* (Rs) | 12.6 | 3.8 | | 11.4 | 3.6 | | 4.7 | 3.5 | |
| * Annualised on fully diluted equity of Rs 16.05 crore. | |||||||||
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