Spreading wings

PENNY WISE

Sunil Hitech makes a good investment driven by robust industry demand, and its recent diversification and backward integration.

Sunil Hitech Engineers, a key player in the fabrication, erection and commissioning of plants (mainly thermal power plants) segments, is expected to benefit from the ongoing investments in the power as well as the industrial sector.

Additionally, the company is scaling up its businesses, by foraying in the BOP (balance of plant) space and, by leveraging its engineering capabilities to diversify into other areas such as power transmission and distribution, and by undertaking erection and fabrication work for steel plants.

As a result, today, the company has an order book of over Rs 800 crore, which is over three times its estimated sales turnover for FY08.

Sunil Hitech mainly derives its revenue from structural fabrication and erection of the thermal power plants (up to 660 MW), which account for 78 per cent of its order book.

While competition like L&T ECC division, Simplex Infrastructure, Gammon and Petron Engineering exists, Sunil Hitech is well-established in this segment and undertakes projects for leading EPC contractors such as Reliance Energy and Tata Power.

"We are involved in about three projects of Tata Power and almost every EPC project of Reliance Energy," says Sunil Gutte, whole time director, Sunil Hitech.

Besides, the company is also working with BHEL (about Rs 200 crore of its current order book), Jindal group (Rs 185 crore) and NTPC (Rs 140 crore). And given that power majors have already disclosed plans of setting up power plants beyond 2012, companies like Sunil Hitech should continue to gain.

The huge investment in the power sector (about 58,644 mw or 74.6 per cent of the total capacity addition by 2012 being thermal power) will also translate into opportunities in the EPC and BOP space.

According to industry estimates, for every rupee invested towards new power generation capacity, about 60 per cent of project cost is towards equipment and EPC work, while BOP accounts for about 30-40 per cent.

In this light, the potential for BOP related work could be significantly high at about Rs 100,000 crore.

Sunil Hitech is now aiming to further enhance its presence in the BOP business. The company aims to undertake larger BOP work (initially through the joint venture route) for power plants ranging 250-500 mw.

For this, the company is identifying companies with the international experience and hopes to acquire projects, which could provide a trigger.

To leverage its capabilities, the company moved into equipment manufacturing and currently manufactures equipments such as re-heater coils, pressure parts bends, water walls, structures, tanks and vessels, heaters, piping, supply boiler pressure parts.

These equipments are also supplied to the replacement market, for maintenance of power plants, which is about two per cent of its current order book.

Lastly, the company also aims to benefit from the equally large opportunities in the power transmission and distribution segments. Here, it has already undertaken work related to erection of substations, transmission lines, etc.

"The company has made a significant progress in this, as the T&D order book, which was merely Rs 25 crore last year around this time, stand at Rs 150 crore today" adds Sunil Gutte. 
 

THERMAL POWER
Rs cr	FY08E	FY09E	FY10E
Net sales	271.0	390.0	550.0
OPM (%)	15.5	14.0	13.5
Net profit	19.5	27.0	35.8
EPS (Rs)	12.1	16.8	22.3
PE (x)	16.4	11.9	9.0

Valuations
Considering a strong order book, which is executable over the next 24 months, and a healthy industry outlook, Sunil Hitech is expected to grow at over 55 per cent annually during FY08-10.

At Rs 206, the stock is available at 11.9 times and 9 times its estimated FY09 and FY10 earnings, respectively and is capable of delivering decent returns.