From a piping, valves and pressure vessels fabricator, Technofab Engineering has emerged as a fast-growing engineering, procurement and construction (EPC) company. Technofab has a track record of nearly four decades and currently provides EPC services, wherein it executes a wide range of Balance-of-Plant (BoP) and electro-mechanical projects on a complete turnkey basis for various industrial and infrastructure sectors.
These include water & waste water infrastructure, power (conventional and nuclear) and oil & gas, among others. In order to scale up its business, the company has come out with an initial public offer (IPO) and is offering 2.99 million at a price band of Rs 230-240 a share.
Business, scaling up
Technofab is a pure EPC contractor and currently undertakes turnkey packages relating to low-pressure piping systems, fuel oil handling systems and fire protection systems as well as comprehensive electromechanical packages, in India and abroad. The company’s biggest ever completed project was worth Rs 62.5 crore for setting up a new seawater intake pumping station and fibre-glass pipeline for Ghana-based Tema Oil Refinery.
| SMALL BASE, BUT GROWING FAST | |||
| In Rs crore | FY08 | FY09 | FY10 |
| Revenues | 81.60 | 149.60 | 200.50 |
| Ebitda | 9.80 | 21.90 | 33.80 |
| Net profit | 5.30 | 11.70 | 19.10 |
| EPS (Rs) * | 7.00 | 15.60 | 25.50 |
| *On pre-IPO equity Source: RHP | |||
| ISSUE DETAILS | |
| Opened on | 29-Jun |
| Closes on | 2-Jul |
| Price band (Rs) | 230-240 |
| Size (Rs cr) | 68.8 – 71.8 |
| Fitch IPO rating | 3/5 |
Technofab has a reasonably decent track-record, having completed about 120 projects – it has about 41 ongoing projects, including four in Africa and one in Asia in its fold – for customers like NTPC, BHEL, Kenya Power & Lighting Company, BSES (now Reliance Energy) and APSEB, among others.
While it has gradually moved up the value-chain by expanding its service offerings, it has also been able to increase the average order value (although still small) over the last five years by over two times to about Rs 20 crore.
In order to scale up its business further, the company is raising funds worth Rs 68.77-71.76 crore through the IPO. Of this, about Rs 30 crore is to meet working capital needs, while Rs 16.24 crore is for acquiring construction equipment. It plans to enhance focus on mechanical, electrical & plumbing (MEP) works and undertake large-size projects and comprehensive packages covering the entire gamut of BoP, including — if necessary — through joint ventures. Additionally, Technofab also aims to leverage its skills in the railway/transportation sector. Likewise, it aims to increase the share of the relatively higher-margin export orders, which should prop up overall margins.
Investment rationale
Technofab’s revenues and profits have grown at a fast pace in the last two years on the back of higher execution and an improving project mix. Notably, despite the domestic and global slowdown, it was able to garner higher orders in the last three years — Rs 214.7 crore in 2007-08, Rs 274.9 crore in 2008-09 and Rs 309.5 crore in 2009-10.
While project delays are inherent risks in the business, given the planned investments in the country’s infrastructure and industrial sectors, there is unlikely to be a dearth of opportunities for companies like Technofab, which is already sitting on an order backlog of Rs 533.7 crore as of March. Interestingly, the company has bid for 41 projects worth Rs 2,200 crore, wherein it has already emerged as the lowest bidder in five projects worth Rs 400 crore. All these provide good revenue visibility for the future.
At the price band of Rs 230-240, and assuming a profit growth of 20 per cent in the current fiscal, Technofab’s IPO is fairly priced at a price-to-earnings ratio of 10.5-11 times its estimated 2010-11 earnings, based on post-offer equity capital.
