Sunil Hitech Engineers Ltd - Rs 75.00
Incorporated in 1998, Sunil Hitech Engineers Ltd (SHEL) is engaged in the niche segment of fabrication, erection & testing and commissioning of coal handling plants and ash handling plants, bunkers, turbine hall generator buildings and erection, testing and commissioning of boilers and auxiliaries like Electro Static Precipitator (ESP) both in private & public sector. Thus, it is one of the very few engineering turnkey service provider which is tightly focused in the ever growing power sector. Lately it started construction of steel plant as well. So company basically receives the orders for the construction of thermal, hydro and captive power plants and major steel plants. It executes the order, supplies the labour and materials, construct the plant, install the plant, conduct the testings and handover the plant in working condition to the customer. It is also engaged in overhauling and maintenance of the plants to ensure the proper functioning of the plant post installation. Broadly, power plants need three essential components namely boiler, turbine and generator along with a range of other electrical, mechanical ontrol and instrumentation systems and civil buildings to become a complete power plant. These other components comprise the Balance of Plant (BOP) package. And SHEL has expertise in critical and difficult boiler erection works up to 500 MW and is amongst the handful companies prequalified to undertake BOP packages up to 660 MW. Besides, in transmission and distribution business SHEL takes up erection of EHV transmission lines & substations of 132 kV, 200 kV & 400 kV. It also has experience of working with foreign EPC players like SEPCO China and Skoda Exports.
Importantly, SHEL has an impressive order book position of nearly Rs 1300 crore out of which more than 90% are the BOP jobs within the power sector. However this also includes EPC contract of Rs 329 crore received from one of promoters group company engaged in power generation. Secondly, around 30% of the order book constitutes government orders whereas balance 70% is from private players. Apart from above, company is L1 bidder for another Rs 500 crore of orders, which will keep its order book ticking. With presence in states like Madhya Pradesh, Uttar Pradesh, Maharashtra, Tamil Nadu and Haryana till now SHEL has already worked on projects of 9,850 MW and is currently working on projects in one way or another in excess of 20,000 MW. Being a preferred supplier, company has a long list of clientele including majors like NTPC, BHEL, MSPGC, Reliance group, Jindal group, Sterlite, Hindalco, Tata Power, L&T, Punj Lloyd and various state electricity boards apart from couple of clients in China and USA. Thru its subsidiary, SHEL has a production facility for boiler pressure parts in Nagpur where it manufactures coils like reheater, economizer, LTSH, water wall panels and pressure part like bends and reducers used in boilers up to 500 MW. Having received accreditation for the products from various electricity boards, it now competes with the likes of BHEL and Alstom in the segment. After this backward integration, company in future intends to take up complete power plant projects on EPC basis mainly in the range of 5MW to 60 MW.
On the macro front, 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, 36,000 MW is expected to be added by nine Ultra Mega Power Projects (UMPP). SHEL has already made a joint bid for the BOP work for the Mundra UMPP. Besides it is also contemplating to bid for UMPP awarded to Reliance Energy and Tata Power. Incidentally, each UMPP (of 4000 MW) has potential BOP work of around Rs 640 crore. This stands to be huge untapped opportunity for SHEL. Secondly, massive investment for upgradation of old power plants in addition to power sector reforms would continue to create enormous business opportunities for the company as it has presence across the entire power supply chain from power generation to power transmission and distribution. In order to meet the increased working capital requirements for larger BOP works, SHEL has already raised Rs 81 cr by placement of 22.50 lakh shares at Rs 360 per share thru QIP route during Jan’08. Earlier in Nov’07 it also made a preferential allotment of 38 lac warrants to be converted into equity @ Rs 146 per share before April’09. However, considering the CMP the warrant holder may not opt for conversion.
Financially, SHEL is doing exceedingly well and has doubled its topline to Rs 242 cr with 60% rise in PAT to Rs 13.70 for H1FY09. Favorably, company has an under leveraged balance sheet with a low debt equity ratio of 0.60x times and hence can raise more debt comfortably. So despite taking into consideration higher interest cost it may end FY09 with a topline of Rs 500 cr and PAT of Rs 20 on conservative basis. This translates into EPS of Rs 16 on current equity of Rs 12.30 cr. Secondly it has huge reserves to the tune of Rs 145 cr on small equity leading to a healthy book value of Rs 128. Against the net current assets of Rs 120 cr, company is currently available at a market cap of less than Rs 100 cr. Although company may see less order inflow coupled with lower margin, still it qualifies a decent buy at current levels. Long term investors can buy safely as scrip can easily appreciate 50% in 12~15 months.
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