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Stock Ideas: Sunil Hitech Engineers (Powering ahead)
Stock Ideas
[March 12, 2010] | | |
| Summary of Contents STOCK IDEAS Sunil Hitech Engineers
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs295
Current market price: Rs211
Powering ahead Key points -
Moving up the value chain: Sunil Hitech Engineers Ltd (SHEL) has moved from being a mere labour supplier and contractor to undertaking the services portion of Balance of Plant (BoP) contracts for thermal power plants. As the next logical step, the company is transforming itself to emerge as a full-fledged BoP player that can execute large BoP contracts for up to 500MW power plants and engineering, procurement and construction (EPC) contracts for up to 100MW (up from 25-50MW earlier) units. It is now among a handful of Indian players that are pre-qualified to undertake critical BoP packages for up to 660MW capacity. -
Orders galore, huge opportunity ahead: SHEL has an order book of Rs2,062 crore which is executable over the next 24-30 months. The order book is 3.4x its FY2009 net revenues and provides strong revenue growth visibility. The company has bagged orders worth Rs1,435 crore in the first nine months of this fiscal, including the first major BoP contract of Rs487 crore from Mahagenco for its 250MW power plant. It also has a healthy pipeline of order bids worth Rs3,000 crore. What?s more, the opportunity in the BoP segment is enormous and a secular growth story for the coming decade. Even if we assume an average power generation capacity addition of 10,000MW per year, the opportunity size for the players in the niche segment of BoP and the other related services works out to about Rs20,000 crore annually. -
Investing to sustain high growth momentum: Apart from investing in building its technical expertise, the company has made substantial capital expenditure in enhancing its fabrication capacity for steel structures and boost its asset base of construction and erection equipment. Consequently, its gross block has increased by more than five-fold to over Rs150 crore in the past four years. -
High growth at cheap valuations: SHEL has grown at an exponential rate of 103% over FY2007-09. In view of its strong order book, the huge opportunity in its chosen niche space and its initiatives to undertake large projects, we expect SHEL to double its net revenues and earnings over FY2009-12. The stock trades at a substantial discount to its peers and its current valuation leaves significant scope for re-rating. Moreover, we have not factored in any value from SHEL?s 20% stake in the GangaKhed project and 49% stake in its joint venture for coalmines. Historically SHEL has traded at an average multiple of 8.1x its one-year forward earnings per share (EPS). We initiate coverage on SHEL with a Buy recommendation and a price target of Rs295 (8x average EPS of FY2011 and FY2012). | |
Regards,
The Sharekhan Research Team | | |
Please use your discretion before acting on the ideas expressed in the group.
Happy Trading,
United we grow!!!
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