Technofab’s growth depends on its execution ability

Its IPO, opening tomorrow, values the company lower than its competitors

Technofab Engineering Ltd (TEL) hits the capital market on 29 June 2010. TEL offers engineering, procurement and construction (EPC) services for various balance of plant (BoP) packages-for sectors like conventional power, nuclear power, oil & gas, water & waste-water treatment, infrastructure, electrical distribution and rural electrification. Fitch Ratings has assigned an 'IPO Grade 3' to the issue indicating 'average fundamentals'.

TEL's competitors like Hindustan Dorr Oliver Ltd, Shriram EPC Ltd, Sunil Hitech Engineers Ltd and McNally Bharat Engineering Company Ltd carry P/Es between 12.9-34.8. TEL's EPS is Rs25, which is the highest among its competitors. Based on this EPS, TEL's P/E at the lower band of Rs230 stands at 9.2.

The IPO will be used to meet working capital requirements of Rs30 crore, to purchase construction equipment and storage facilities for Rs20.3 crore, and to set up a training centre for employees for Rs5.4 crore. The company had a strong order book of Rs533 crore as on 31 March 2010. In FY07, TEL divested 9% by entering into a strategic tie-up with Gammon India Limited (GIL) and divested 6.7% holding to Associated Transrail Structures Ltd (ATSL, now merged in GIL). The move has helped TEL to bid for projects for which it was not eligible due to net worth criteria.

TEL had a net profit of Rs19.09 crore on a total income of Rs200.48 crore as on 31 March 2010. It operates in an industry with high working capital needs. It has a limited track record as it has turned around mainly in FY08, FY09, and FY10 by posting 32%, 84.34% and 34.20% year-on-year growth. The top five customers contributed to around 75% of its FY09 revenue and 47% of its current order book. In fact, TEL posted a negative cash flow of Rs13.42 crore for the year ended 31 March 2010, which underlines the need for funds. There are 19 litigations filed against the company pertaining to civil, criminal and tax proceedings involving Rs8.95 crore. It claims to be carrying out projects in Ethiopia, Fiji and Kenya and says it is bidding for projects in several other African countries.

Collin Stewart Inga Pvt Ltd is the sole book running manager to the issue. The company has 29.90 lakh shares on offer and plans to raise Rs68.77 crore at the lower end of the price band. It has set the price band at Rs230-Rs240 per share.


New gas policy may favour new plants to expansion projects

If the government decides to allocate gas to new projects before the existing ones, the move may seriously impact state-run NTPC's gas-based capacity addition plans

The government is believed to be in the final stages of formulating a gas allocation policy, which is likely to give preference to new power plants over expansion projects, reports PTI.

"The (gas linkage) policy may be broadly based on the coal linkage policy," a power ministry official said.

As per the coal linkage policy, first priority is accorded to power projects of the central sector PSUs like NTPC, state sector utilities like APGENCO (Andhra Pradesh Generation Company) and projects to be bid out by states on tariff-based competitive bidding, followed by independent power projects (IPPs) and captive power plants.

In the new policy, which is likely to be called the Gas Linkage Policy, the government is mulling the option of giving preference in allotment to greenfield (new) power projects over brownfield (expansion).

"May be new projects are given priority over the existing ones in the gas policy," he said, adding that the modalities of the policy are being worked out.

If the government decides to allocate gas to the new projects before the existing ones, the move may seriously impact state-run NTPC's gas-based capacity addition plans.

NTPC had earlier said it would request the power ministry to take its proposal for the allotment of 30 million metric standard cubic metres per day (mmscmd) of gas for its expansion projects, forward to the oil ministry.

NTPC, currently, has a gas-based power generation capacity of about 4,000 MW and the company requires additional gas for its expansion projects, other than Kawas and Gandhar in Gujarat.

The power utility is fighting a case with the Mukesh Ambani-led Reliance Industries (RIL) in the Bombay High Court for gas supply to its Gujarat projects.


India will take up a lead role on global carbon budget: Jairam Ramesh

"India stands to gain the maximum from the carbon-budget approach because we are creditors and we have not used carbon space, the Union environment minister said

India will take up a leadership role on the issues of global carbon budget and seek support from various countries in equitable access to atmospheric space in the run up to the Cancun climate change meet, according to Union environment minister Jairam Ramesh, reports PTI.

India cannot and will not accept any agreement which does not have its fundamental principle of "equity and equitable access to global atmospheric space," he said at the two-day conference on 'Global Carbon Budgets and Equity in Climate Change,' at the Tata Institute of Social Sciences (TISS) in Mumbai.

"In the next six months in the run-up to Cancun, India will take the leadership role on the issue of a global carbon budget," Mr Ramesh said.

Our strategy must also be based on both per capita emission principle along with per capita income, which are "constituent elements of equity strategy," he stressed.

"We have strong support from China, Brazil, South Africa and when I reach Rome today, I will be talking to German and French leaders too to gain more support on equity and equitable access to global atmospheric space," he said.

"This is a matter of survival for us and when we talk about equity, we talk about development," he said adding, "We are arguing for international equity and at the same time, personally I believe that it is the responsibility of the government of India to ensure domestic equity also."

Mr Ramesh said India will be a great beneficiary if the global carbon budget principle is accepted as the country is a late comer in high growth plane.

"India stands to gain maximum from the carbon budget approach because we are creditors and we have not used carbon space, which has been quantified by a German think-tank publication," he said.

In his key-note address, executive director of South Centre from Geneva Martin Khor agreed with the Indian stand on equitable access to atmospheric space in carbon budgeting at the forthcoming negotiating tables in Brazil and Cancun.

Mr Khor, however, said India has to stress on the operationalisation, based strongly on scientific inputs in terms of technology and finance.

T Jayaraman of the TISS presented his paper on 'Global Carbon Budgets and Burden Sharing Regimes,' which will be taken for debate for the next two days.

Meanwhile, the environment ministry is collaborating with TISS on this project, called for more such academic centres to participate on bringing about new ideas which may be different from conventional thinking.

"Opportunities must be provided for the government with new ideas by the academic and research analysts, and the government will support such efforts," he added.


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