IIFL Mid-Cap Roadshow: Sunil Hitech Engineers

Margins are expected to improve from current levels as the company is not bidding in projects with margins lower than 10%.

September 24, 2014 6:23 IST | India Infoline Research Team
Represented by: C. Venkataramana (MD and Co-founder of Sunilhitech India Infra Pvt Ltd)
Market Cap: Rs2.1bn; Promoter shareholding: 57.8%
FY14 Financials
PAT Net Worth D/E RoE RoCE
Rs292mn Rs3.5bn 1.3x 8.9% 16.9%
Company Profile: Sunil Hitech has been engaged in Balance of Plant (BOP) and Engineering Procurement Construction (EPC) services business for power plants over the last three decades. To overcome the slowdown in domestic power business, the company has diversified itself into integrated infrastructure verticals comprising of roads and bridges, solid waste management projects, solar power projects and construction of residential projects. The company is also setting up a 5MW solar plant in Maharashtra. On the back of the diversification exercise, topline has doubled to Rs14.3bn over the period FY10-14.
Key takeaways
  • Outstanding order book stood at ~Rs36bn; orders from power sector accounts for ~Rs25bn, roads account for Rs2.9bn, urban infrastructure projects (Municipal solid waste) account for Rs5bn and jail project civil work in Punjab accounts for Rs3.5bn. The company also has Rs0.4bn worth of solar plant orders. The firm expects these orders to be executed over the next two years.
  • Management expects consolidated revenues to increase from Rs15.7bn in FY14 to Rs20bn in FY15 and Rs32bn by FY17. The company expects topline growth to come largely from increased spend in the domestic infrastructure business. The management sees huge opportunity in roads and bridges, building construction and renewable energy sectors.
  • Margins are expected to improve from current levels as the company is not bidding in projects with margins lower than 10%. Pickup in execution would also assist the company in increasing its margins over the next two years.
  • The company has received 3 orders for solid waste management in the last one year from Municipalities of Kolhapur, Bangalore and Patna amounting to Rs5.1bn. The projects have been awarded on a BOT for a period of 25 years (2 years of construction and 23 years of operations). The company plans to fund the capex with a Debt/Equity ratio of 70:30 and expects operating margins at 70-75%.
  • The company is in final stages of financial closure for setting up a 5MW solar plant, which is expected to be completed by April ’15. SHEL will set up the project, generate power and supply to SECI at Rs5.45/unit. The cost of the 5MW project is estimated at Rs 425mn which has received a variable grant funding of Rs67.5mn from the government. It has also tied up with a contractor for a capex cost of Rs0.7mn/MW. The company expects to bag further 15MW of solar plant orders in the near term.
  • Finance costs for the company was quite high in FY14 due to costs involved for non-fund based activities (Bank Guarantee and performance guarantee bonds). The management sees finance costs remaining around current levels as it expects to bidding to remain high in FY15.
  • The company is trading at a discount to its peers at 7x FY14 P/E.

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