Tecpro Systems designs, engineers, manufactures, sells, commissions and services a range of systems and equipment for the core infrastructure related sectors like power, steel, cement and other industries. The company has taken up turnkey BoP contracts in the thermal power generation sector.

Key Investment Arguments:

• Good revenue visibility and order prospects: WIth order backog of `4250cr as of Dec- 10, the company has a good revenue visibility.The company has received `3368 cr of orders in 9mFY11 and `600-700 cr after the quarter. There are 10 more ash and coal handling packages to be awarded by NTPC and SEBs over the next 4-6 months worth `2500-3000 cr. New orders would add to the revenue visibility.

• Fourth quarter should see good revenue and profit booking: The fourth quarter typically accounts for 40% of full year revenues. The company expects to book Rs. 1000 cr of revenues in 4QFY11. Fixed costs tend to remain steady over this period, leading to a high margin for this quarter and hence good profits.

• JVs and tie-ups to help provide complete package to customers: Tecpro has an understanding with VA Tech for water treatment plants and Gammon India for cooling towers. This will allow it to bid jointly for BOP packages consisting of Coal handling, Ash Handling, water treatment and cooling towers. Tecpro has taken up EPC contracts for two small power projects with BTG outsourced. Also, Tecpro has tied up with Nanjing Triumph Kaineng Environment and Energy Company Ltd, China for Waste Heat Recovery (WHR) sytems for cement plants.

Valuation and view:

• Despite expected ROE of 25%+, revenue visibility of ~2 years with potential orders, the stock seems undervalued at 10.2XFY11E P/E as compared to target P/E for competitors of 11.9x. We recommend buy for a target of Rs. 350 based on FY12 earnings.

CMP (Rs.) 282
MBP (Rs.) 292
Face Value 10
Equity Shares (Mn) 50.5
52-Week Range (H/L) 454 /225
M.Cap. (Rs b) 14.2