05 2011 - May 2311 41230511

23 May, 2011
RESEARCH
SECTOR REPORT
MATERIAL HANDLING
Going through a rough patch...
Ankit Babel +91-22-6618 6551 ankit.b@pinc.co.in
Vinod Nair +91-22-6618 6379 vinod.nair@pinc.co.in
RESEARCH
Contents
Executive Summary ..................................................................................................
Power BoP EPC segment, the key growth driver ......................................................
Pressure on margins .................................................................................................
Healthy order book ....................................................................................................
Valuation and Recommendation ................................................................................
Companies
Tecpro Systems ..................................................................................................
Elecon engineering Ltd. ......................................................................................
17
Mcnally Bharat & Engineering Ltd. .....................................................................
25
TRF Ltd. ..............................................................................................................
33
RESEARCH
MATERIAL HANDLING
Going through a rough patch...
The Indian Material Handling Industry is going through a rough patch. It is battling a tough environment marked by high interest rates, delay in financial closures, deferment in environment clearances, political risks and lack of reforms resulting into a sluggish investment scenario. These factors have taken their toll on the industry, engendering a slowdown in order inflows. Competition has intensified and margins have taken a hit. We believe this scenario will persist in near term. However, an improvement in the macroeconomic scenario and increase in order inflows would re-rate the sector. Amid these concerns, we like Tecpro Systems and Elecon Engineering, companies that stand out due to their product mix, strong order book and healthy margins. Power Balance of Plant (BoP) EPC Segment - the key growth driver Gradually, all the companies in this space have either moved or aspiring to move across the value chain. From being mere contractors for coal handling and ash handling plants, companies are aspiring to become complete EPC providers for BoP in a power plant. Tecpro and McNally have already won breakthrough orders in the power BoP space and TRF and Elecon are still scouting for orders. We believe the power BoP industry would act as the key growth driver. Pressure on margins to continue Lack of orders, intense competition, increasing interest rates and access to new business areas at entry-level quotations would continue to exert pressure on margins. The sector is marked by high working capital and a spike in interest rates would depress bottom lines. We believe pressure on pricing due to slowdown in order inflows and higher material and interest cost would impact margins. Healthy Order book provides visibility The companies under our universe have healthy order book (book-to-bill ratio of 1.5x-2.2x FY11E revenue), which provides good near-term visibility. Our interactions with the managements indicate that enquiries have increased but conversion is slow, leading to delay in order tendering. We believe the slowdown in order flows would continue in near term before picking up momentum. VALUATIONS AND RECOMMENDATION Companies in our coverage universe displayed a mixed performance in recent quarters. Elecon and Tecpro recorded healthy earnings growth, sustainable margins and good order inflows; however, TRF and McNally disappointed. We believe Tecpro and Elecon would continue to perform well on the back of healthy order book, better product mix and steady order inflows. Thus, our top picks in the sector are Tecpro Systems (BUY with TP of Rs370) and Elecon Engineering (BUY with TP of Rs96).
23 May 2011
Ankit Babel +91-22-6618 6551 ankit.b@pinc.co.in Vinod Nair +91-22-6618 6379 vinod.nair@pinc.co.in
SECTOR REPORT
OPPORTUNITY FOR POWER BOP (Rs bn) Total capacity envisaged (MW) Thermal Capacity (MW) Cost per MW (Rs mn) Total Investment in TPP Share of BoP (45%) Annual Opportunity BoP Coal Handling Ash Handling Plant Water treatment & Cooling Tower Civil Works Others (Incld IDC) 304 81 41 41 81 61 103,000 75,000 45 3375 1,519
Sector Summary
KEY FINANCIALS
Company Tecpro Systems Elecon Engineering McNally Bharat TRF CMP (Rs) 300 69 184 398 Sales (Rs bn) Mcap (Rs bn) FY12E FY13E 15.1 6.4 5.7 4.4 25.8 13.8 27.9 13.7 30.7 17.0 31.9 15.3 OPM (%) FY12E 13.2 14.7 7.2 7.1 FY13E 12.9 14.7 7.2 7.3 RONW (%) FY12E 20.4 18.8 24.2 25.3 FY13E 20.7 20.7 23.7 23.0 PE (x) FY12E 9.8 7.9 6.8 10.5 FY13E 8.0 6.1 5.6 9.2 TP (Rs) Rating 375 96 275 378 BUY BUY BUY SELL 1
PINC Research reports are also available on Reuters, Thomson Publishers and Bloomberg PINV <GO>
RESEARCH
Power BoP EPC segment, the key growth driver

Gradually all companies have either moved or are aspiring to move across the value chain. From being mere suppliers of certain equipment and contractors for coal handling and ash handling plants, the companies are migrating to become complete EPC contractors for BoP in power plant. Tecpro and McNally have already won breakthrough orders in the power BoP space and TRF and Elecon are still scouting for orders. We believe the power BoP industry would act as the key growth driver. Power BoP Rs1.5trn opportunity Total investment in power BoP is estimated to grow to ~Rs1.5trillion over the next five years. Power BoP, which include coal handling, ash handling, water treatment plant, cooling towers, civil work and other related equipments, forms ~45% of the total cost of setting up coal based power plant.
Cost break-up of coal based power plant

Component Boiler Turbine-Generator Coal Handling Plant Ash Handling Plant Water treatment & Cooling Tower Civil Works Others (Incld IDC) Total Source: Industry, PINC Research Share 25% 25% 10-12% 5-6% 5-6% 10-12% 16-17% 100%
Table showing Cost break-up of coal based power plant As per Ministry of Power, total capacity addition envisaged for XIIth five year plan is 103,000MW. Out of it ~75,000MW is expected to be Thermal. This translates into an opportunity of Rs1.5trillion in the Power BoP space in the next five years. This creates Rs300bn annual opportunity for the players under our coverage universe.
Opportunity for power BoP

Total capacity envisaged (MW) Thermal Capacity (MW) Cost per MW (Rs mn) Total Investment in TPP Share of BoP (45%) Annual Opportunity BoP Coal Handling Ash Handling Plant Water treatment & Cooling Tower Civil Works Others (Incld IDC) Source: MoP, PINC Research 304 81 41 41 81 61 103,000 75,000 45 3375 1,519
(Rs bn)
ankit.b@pinc.co.in
RESEARCH
Break-up of Power BoP

BoP (Rs304bn)
Coal Handling (27%)
Ash Handling (13%)
Water Treatment and cooling Tower (13%)
Civil Works (27%)
Others (20%)
Source: PINC Research
Power BoP orders are placed 1.5 to 2 years after BTG orders are placed. With 80 GW of power capacity under construction, we believe BoP contracts for thermal plants that were planned for XIth Plan have already been placed and majority of ordering for XIIth Plan is yet to pick up momentum. Companies under our coverage universe are ready to cash on this opportunity. All these companies have experience in coal handling projects and related material handling equipments, which form a major chunk of a BoP contract. Other areas such as water treatment plants, cooling towers and civil constructions where the players lacks expertise can bid in consortium with players possessing such expertise. For example, Tecpro won its first breakthrough order in power BoP worth Rs9930mn from Chhattisgarh state power generation company for 1x500MW thermal power plant at Korba west in August, 2009 in consortium with VA Tech (for water treatment) and Gammon India Ltd. (for cooling tower package). Similarly, McNally won its breakthrough order worth Rs4.14bn for 1x270MW TPS from Ideal Energy in July, 2009. Elecon and TRF are also ready with their infrastructure and consortium partners to win their maiden orders in the Power BoP space.
Players having presence in various components of BoP and their market shares
BoP (Rs. 1,510bn)
Coal Handling Plant 18-30 mths
Ash Handling Plant 12-18 mths
Water Treatment & CT 18-30 mths
Turnkey Players
- Tecpro (19-20%) - L&T (12-13%) - Elecon (10-11%) - TRF (5-6%) - Thyssenkrupp (5-6%) - others (45-48%)
- Indure (35-40%) - Macawber Beekay (25-30%) - DCIPS (10-15%) - Tecpro (8-10%) - McNally Bharat (5-8%)
Cooling Tower(CT) - Paharpur CT (35-40%) - Gammon India (20-25%) DM Plant - Driplex (15-20%) - Thermax(5-10%) - Doshin (10%) - Ion Exch. (8-10%)
Existing - BGR - L&T - Tata Projects - BHEL - Reliance Infra New Entrants - Tecpro - McNally Bharat - TRF
Source: CEA, PINC Research
ankit.b@pinc.co.in
RESEARCH
Pressure on margins to continue

The Indian Material Handling Industry faces numerous macro challenges: high interest rates; delay in financial closures and environmental clearances; lack of reforms; low political willingness; and a sluggish investment environment. All these factors have resulted in a slowdown in order inflows, leading to higher competition. To secure access to new areas of business, companies increased their overheads. However, delay in receiving orders resulted in higher fixed cost, putting pressure on margins. Aggressive bidding by players to capture market share resulted in pricing pressure and strain on margins. We believe companies are aiming for high growth by entering into newer segments (BoP, cement, Oil & Gas), and would have to compromise on margins to win their maiden orders. The companies in the sector are working capital intensive. Thus, higher interest rates would hit their bottom lines. We do not expect this scenario to improve in the near term. Private players prefer to award equipment contracts on a turnkey basis due to lack of project management skills whereas; central utilities award each component separately. More than 55% of total coal-based capacity additions are expected to come from private sector players. Given this scenario, component players are shifting from executing lowvalue, high-margin BoP components to high-value, low-margin turnkey projects. Hence margins for the BoP industry are likely to be under pressure going forward. We remain skeptical on margin improvement owing to these factors. We believe that pricing pressure, higher material and interest cost and slowdown in order inflows would adversely impact margins.
Operating Profit Margins (%)

Tecpro 20 15 10 5 0 FY08 FY09 FY10 FY11E FY12E FY13E Elecon Mcnally TRF
Net Profit Margins (%)

Source: Company, PINC Research
ankit.b@pinc.co.in
RESEARCH
Stick to efficient players Simultaneously, we believe that established players will continue to have an edge over new entrants mainly due to the high cost involved in setting up power plants. Any delay in supply of equipment or commissioning of projects due to inefficiency of the contractor can adversely impact IRR of a project. Therefore, in order to avoid any risk of time and cost overrun, developers would prefer to stick with capable and experienced players.
Cost of delay for a 500MW pithead unit (either due to main plant or BoP)
Particular Loss on account of purchase of costlier power from alternate sources Increase in IDC and consequently the fixed cost component of tariff Loss of return to developer
Source: CEA
Estimated Loss Rs25mn to 60mn/day Rs4.5mn/ day Rs2.5mn/day @14% ROE.
The utilities would keep the above costs in view while deciding contractual matters and we believe this will force the utility to stick with renowned and capable players.
ankit.b@pinc.co.in
RESEARCH
Healthy order book provides visibility

Companies under our coverage universe have healthy order book (book-to-bill ratio of 1.5 2.2x FY11E revenue), which provides good near-term visibility. Our interactions with the managements indicate that although enquiries have increased, conversion has been very slow, leading to delay in order tendering. We believe the slowdown in order flows would continue in near term before picking up momentum. The power sector forms a major share of the order book of all the companies followed by metals, minerals and other industries. Going forward, with the focus being on the Power BoP segment, we believe the power sector would continue to dominate order books of companies.
Tecpro
Steel & Cement 6% Others 5%
Elecon
Others 33% Power 39%
Power 90% Source: Company, PINC Research
Metals 28%
TRF
Others 29%
McNally
Ports 28% Power 32%
Power 77% Source: Company, PINC Research
Infrastructure 23%
Material Handling 17%
ankit.b@pinc.co.in
RESEARCH
Valuations and Recommendation

The companies displayed a mixed performance in last few quarters. Elecon and Tecpro recorded healthy earnings growth, sustainable margins and good order inflows whereas TRF and McNally disappointed. Elecon and Tecpro recorded over 100% growth in order inflows whereas TRF did not win any order in the past three quarters and McNallys order inflows increased by just single digit.
Recent performance
Company Tecpro System (9MFY11) Elecon Engg. (9MFY11) Mcnally Bharat (FY11) TRF (FY11) Source: Company, PINC Research Growth in Revenue 40% 15% 18% 13% OPM (bps) 298 10 (80) (750) Growth in flows 176% 136% 6% (58)%
Tecpro registered a healthy performance in 9MFY11. Revenue grew 40%, margins improved 298bps and order inflows grew 176% led by good order inflows in the power BoP segment. Elecons performance was satisfactory. For the period ending 9MFY11, the company registered sales growth of 15%, maintained its margins and recorded robust growth in order inflows. In 9MFY11, total order inflows grew 136% led by 259% growth in orders in the MHE division (albeit on a low base) and 47% growth in the gears division. McNally Bharat disappointed with its performance. Although revenue grew 18% in FY11, there was pressure on margins, which declined by 80bps. Further, order inflows grew by mere 6%. The performance of McNally Sayaji, subsidiary of McNally Bharat also disappointed since it registered de-growth of 4% in revenue and OPM contracted by 400bps. TRFs performance too was disappointing. Consolidated revenue grew 29% led by healthy growth in the product division (69% in FY11); however, the project division grew by mere 5.6%. Operating margins declined sharply by 750bps (part of which was attributable to a one-time provisioning of cost under estimation in one of the divisions). TRF did not receive any order in last three quarters and it continues to face challenges in order booking. We believe Tecpro and Elecon to continue to perform well on the back of healthy order book, better product mix and steady order inflows. Thus, our top picks in the sector are Tecpro Systems (BUY with TP of Rs370) and Elecon Engineering (BUY with TP of Rs96).
ankit.b@pinc.co.in
C om pa n ie s
Initiating Coverage Sector: Material Handling BSE Sensex: 18,326
RESEARCH
TECPRO SYSTEMS LTD.

On Fast Track...
Tecpro provides turnkey solutions in material handling, coal and ash handling, Power BoP and EPC contracts. The company has constantly moved across the value chain to capture higher market share. It is best placed among peers in terms of execution of projects in profitable manner. Continuous order inflows and healthy margins make valuations attractive. Constantly moving across the value chain Constantly moving across the value chain has been the key success mantra for Tecpro. From a mere supplier of conveyors, it became a provider of complete material handling solutions; it added coal and ash handling to its portfolio and has now forayed into EPC of Power BoP. This constant forward integration has enabled the company to garner a bigger share in every project tendered. Healthy and safe order book provides visibility
STOCK DATA
Market Cap Book Value per share Eq Shares O/S (F.V. Rs10) Free Float Avg Traded Value (6 mnths) 52 week High/Low Bloomberg Code Reuters Code Ankit Babel +91-22-6618 6551 ankit.b@pinc.co.in Vinod Nair +91-22-6618 6379 vinod.nair@pinc.co.in
BUY CMP Rs300 TP Rs370

23 May 2011
Initiating Coverage
The current order book of the company is healthy at Rs43bn (2.2xFY11E revenue) dominated by power sector (90% share). Power BoP orders are placed after the BTG (boiler, turbine and generator) orders and therefore, all the orders in the order book are financially closed, minimizing risks of any delay or cancellations. Best placed among peers Tecpro commands the highest margins and return ratios compared with peers, mainly due to higher efficiencies and project management skills and a low-cost structure. For the period ending 9MFY11, where everybody else was scouting for business, Tecpro had massive order inflows. Highest market share in CHP projects in the XIth Plan period, and repeat orders from clients reflects managements capability in accomplishing projects as per the terms and conditions and schedules. VALUATIONS AND RECOMMENDATION Rising order backlog underpins Tecpros revenue growth. We expect Tecpro to record 28% sales CAGR (FY10-13E). We expect margins to decline marginally owing to the growing share of large-ticket BoP orders which entail long execution periods. Nevertheless, margins would remain healthy because Tecpro has better engineering and designing capabilities, facilities for in-house manufacturing of equipment, and an efficient cost structure. We initiate coverage with a BUY recommendation with a target price of Rs370 (12x FY12E).
Rs15.1bn. Rs136.3 504.7mn. 47.4% Rs3.1mn Rs454/225 TPRO IN TPSL.BO
TOP SHAREHOLDERS
Name Avigo Venture Invest. Ltd METMIN Invest. Hlds Ltd Bond Street Custodian Ltd DSP Blackrock Invest. Manager % holding 13.5% 8.5% 3.3% 2.3%
PERFORMANCE (%)
Absolute Relative 1M (4.6) 1.4 3M 3.1 2.4 6M (15.5) (6.2)
KEY FINANCIALS
FY09 Net Sales YoY Gr (%) Op.Profits OPM (%) Adj Net Profit YoY Gr (%) 7,110 46.9 930 13.1 507 23.2 18.3 49.0 38.7 16.4 1.2 9.0 FY10 14,628 105.7 2,340 16.0 1,096 116.3 24.8 43.7 42.8 12.1 1.1 7.0 FY11E 19,776 35.2 2,792 14.1 1,283 17.0 25.4 26.6 24.7 11.8 1.0 7.0 FY12E 25,842 30.7 3,417 13.2 1,546 20.5 30.6 24.4 20.4 9.8 0.8 6.3
Rs mn FY13E 30,715 18.9 3,970 12.9 1,883 21.8 37.3 23.7 20.7 8.0 0.7 5.8 9
RELATIVE PERFORMANCE
Tecpro 500 400 300 200 100 Oct-10 BSE (Rebased)
KEY RATIOS
Dil EPS (Rs) ROCE (%) RoE (%) PER (x) EV/Net Sales (x) EV/EBITDA
Dec-10
Jan-11
Mar-11
May -11
RESEARCH
Tecpro Systems
Constantly moving across the value chain Tecpro Systems undertakes turnkey material handling projects for cement, steel and power companies. Since inception, Tecpro constantly moved across the value chain. Over the years, the company developed in-house capabilities for providing comprehensive solutions in material and ash handling systems. Leveraging its project management skills and capabilities in coal and ash handling, Tecpro entered the business of turnkey BoP contracts in thermal power plants. A high share of inhouse manufacturing provides the company a competitive edge in terms of cost, quality and timely execution of contracts. Further, besides BoP contracts, Tecpro undertakes turnkey EPC contracts in the BTG space in small thermal power projects. The company either collaborates with another company or outsource these contracts to a third-party supplier for executing BTG packages. This constant forward integration has enabled Tecpro to secure a larger slice of every project tendered.
Business Model
Tecpro Systems
Material Handling Solutions - Manufacture & sale of material handling equipment - Undertake turnkey material handling contracts - Focus on infrastructure sector;power, steel & cement
Ash Handling Solutions - Manufacture & sale of ash handling equipment - Undertake turnkey ash handling contracts - Focus on infrastructure sector;power, steel & cement
BoP/EPC contracts for thermal power projects - Undertake BoP contracts for thermal power projects - Undertake EPC contracts for small thermal power projects
Other Businesses (through Subsidiaries) - Supply of air pollution control equipment - Turnkey solutions for waste processing & biomass power generation
To further enhance the span of value added services, recently Tecpro entered into a license agreement with Pneuplan Oy, Finland, for projects involving dense phase pneumatic conveying for fly ash and allied material. In addition, it entered into an exclusive collaboration with Nanjing Triumph Kaineng Environment and Energy Company, China, for Waste Heat Power (WHR) projects for the Indian market. Soon after, Tecpro received breakthrough orders in WHR worth Rs2240mn from UltraTech Cement and Shree Cement.
ankit.b@pinc.co.in
10
RESEARCH
Tecpro Systems
Healthy and safe order book provides visibility Tecpros order book has grown at an impressive 70% CAGR (FY07-FY11E) mainly due to higher share of orders from the power sector. The share of Power sector grew from 42% in FY07 to 90% in FY11. We believe power sector will continue to dominate the order book.
Orderbook
Pow er 50,000 40,000 30,000 20,140 20,000 10,000 0 FY07
Steel
Cement
Others
Total 43,555 50,000 40,000 30,000
9,669 4,763
12,529
20,000 10,000 0
FY08
FY09
FY10
FY11E
The current order book is healthy at Rs43bn (2.2xFY11E revenue), which provides revenue visibility. The company has bid for projects worth Rs50bn. Tecpro has a relatively safe order book as majority of the orders are from the power sector where BoP orders are placed after the BTG orders. Therefore, all the orders in the order book are financially closed, minimizing the risks of delay or cancellation. The public sector constitutes ~70% of the order book, providing stability to order backlog.
Key projects under execution

Client Chhatisgarh State Power Generation Co. APGENCO APGENCO Kohinoor Power Private Limited EPC Lanco Infratech Limited Jindal India Thermal Power Tata projects, Krishapatnam Utkal Alumina refinery NTPC SAIL NTPC Tata projects Lanco Lilama, Vietnam Source: Company, PINC Research Description BoP, 1x500 MW Korba West BoP, 1x600 MW Rayalaseema BoP, 1x600 MW Kakatiya 1x66 MW Power Plant Jamshedpur Coal handling for 3 x 660 MW Koradi Thermal Power Plant Coal handling for 2x600 MW Thermal Power Plant Coal handling for 2x800 MW, Super Critical Bauxite handling and secondary crushing Coal handling for 1x500 MW Erection of plant and equipment, steel structures, refractories Vindhyachal Ash handling, stage IV 2x500 MW Krishapatnam Ash handling, 2x800 MW Anpara Ash handling, 2x600 MW Ash handling, 2x600 MW
ankit.b@pinc.co.in
11
RESEARCH
Tecpro Systems
Best placed among peers We believe Tecpro is best placed among peers in terms of efficiency, profitability, project management skills, project designing, and cost structure. This superiority has resulted in robust order inflow for Tecpro in the recent past when others faced challenges in winning orders. Low overheads and efficient cost management enable the company to achieve the highest margins and healthy returns ratios among peers.
Operating Profit Margins (%)

Net Profit Margins (%)

ROANW (%)
ROACE (%)
ankit.b@pinc.co.in
12
RESEARCH
Tecpro Systems
Commands highest market in Coal Handling Projects (CHP) As per Central Electricity Authority (CEA), Tecpro has the highest market share in CHP projects (third largest market share in ash handling projects) in the XIth Plan period. This reflects on the Tecpro managements efficiency and capabilities. Given its leadership in the segment, we believe Tecpro is well positioned to cash in on the massive opportunity in the power industry.
Coal Handling
32 24 Order (Nos.) 16 8 0 Tecpro
Source: CEA
27
11 7 6 3 3
Larsen & Toubro Elecon Engg.
TRF
Thy ssenKrupp Industries India
Others
Ash Handling
24 19 18 Orders (Nos.) 12 12 6 0 Indure Mecaw ber Beekay
Source: CEA
11 9 5 3
Tecpro
DC Industrial
Mcnally Bharat
Others
High number of repeat orders Furthermore, Tecpro has longstanding relationships with clients across sectors power, materials, metal, cement and other industries. Strong project execution capabilities, customer understanding, commitment and transparency have enabled the company to win 1,222 repeat orders from 141 clients in material handling and 78 repeat orders from 21 customers in ash handling. This reflects the confidence imposed by the clients in the management capability in accomplishing projects as per desired terms and conditions and schedules.
ankit.b@pinc.co.in
13
RESEARCH
Tecpro Systems
Key Clientele
NTPC Tata Power Relaince Energy JSW Energy BHEL Lanco Adani Power Hindalco Ultratech Cement Source: Company, PINC Research Jindal Stainless Steel JSW Steel Bhushan Steel Jindal Steel and Power Grasim ACC Nirma Chambal Fertilizers SAIL
Expected sales and order inflow CAGR of 28% with healthy margins A rising order backlog underpins Tecpros revenue growth. The company recorded healthy 85% sales CAGR over FY07-FY10. We expect 28% sales CAGR over FY10-13E. We expect margins to decline marginally owing to an increasing share of large-ticket BoP orders that entail long execution cycles. Nevertheless, we believe margins will remain healthy mainly because of Tecpros better engineering and designing capabilities, facilities for in-house manufacturing of equipment and an efficient cost structure. Tecpros order inflows increased at 46% CAGR over FY07-FY10. Given the companys focus on the Power BoP space, we now expect order flows to increase at 30% CAGR over FY10-FY13E.
Order Inflow (Rs mn)

60000 43093 47402 47968
45000
30000
22160 9730 9930
15000
7062
0 FY07 FY08 FY09 FY10 FY11E FY12E FY13E
Closing Order Book (Rs mn)

100000 75000 50000 25000 4763 0 FY07 FY08 FY09 FY10 FY11E FY12E FY13E 20140 43555 65243 82519
9669
12529
Source: Company, PINC Research ankit.b@pinc.co.in 14
RESEARCH
Tecpro Systems
High working capital impacting return ratios and free cash flows The Power BoP EPC industry is extremely working capital intensive as orders awarded involve long payment cycles and retention money for warranty. Tecpro is on a high growth trajectory and with a higher share of turnkey EPC contracts, the working capital requirements of the company are expected to rise from 35% of sales in FY10 to 51% of sales in FY13E. We believe this would impact return ratios and free cash flows adversely. Return ratios are expected to decline and free cash flows are expected to remain negative in the near future.
Non Cash working Capital as % of sales

60% 50% 45% 35% 49% 51%
30%
15%
0% FY10
FY11E
FY12E
FY13E
Return Ratios
RONW 55 45 35 27 25 25 15 FY10
ROCE
44 43
24 21 FY12E
24 21 FY13E
FY11E
Robust order book- Attractive Valuation Tecpros current order book of ~Rs43bn (book-to-bill ratio of 2.2xFY11E revenue) provides visibility. At CMP, the stock is attractively valued at 9.8xFY12E. We initiate coverage with a BUY recommendation with a target price of Rs370 (12xFY12E).
ankit.b@pinc.co.in
15
RESEARCH
Tecpro Systems
Year Ended March (Figures in Rs mn) Income Statement
Net Sales Growth (%) EBIDTA (exc. other income) Growth (%) Other Income (-) Depreciation EBIT (-) Interest PBT & E/O Items E & O Items PBT (-) Tax Provision Reported PAT Minority Interest Adj Profit Dil. EPS Growth (%)
FY09
7,110 46.9 930 31.9 51 31 950 131 819 819 312 507 507 18.3 18.7
FY10
14,628 105.7 2,340 151.7 131 73 2,398 714 1,684 1,684 587 1,096 1,096 24.8 35.5
FY11E
19,776 35.2 2,792 19.3 157 96 2,854 938 1,915 1,915 632 1,283 1,283 25.4 2.6
FY12E
25,842 30.7 3,417 22.4 208 108 3,518 1,210 2,308 2,308 762 1,546 1,546 30.6 20.5
FY13E
30,715 18.9 3,970 16.2 214 120 4,064 1,253 2,811 2,811 928 1,883 1,883 37.3 21.8
Cash Flow Statement

Profit Before Tax Depreciation Net Interest Exp Tax Paid (Inc)/Dec in working capital Other Items Cash from Operation (a) Purchase of Fixed Assets (Purchase)/Sale of Invest. Other Items Cash from Investment (b) Issue of new Capital Net borrowing from bank Dividend Interest Paid Cash from Fin ( c) Net change in cash (a+b+c)
FY09
819 31 80 (269) (241) 65 484 (419) (69) 50 (438) 240 615 (219) (128) 508 555
FY10
1,684 80 588 (626) (3,765) 40 (1,998) (433) (85) 136 (383) 90 3,673 (162) (708) 2,894 513
FY11E
1,915 96 938 (632) (4,676) (2,358) (140) (140) 2,219 1,342 (145) (938) 2,478 (20)
FY12E
2,308 108 1,210 (762) (3,140) (276) (200) (200) 1,310 (174) (1,210) (74) (550)
FY13E
2,811 120 1,253 (928) (3,037) 220 (200) (200) 1,096 (212) (1,253) (370) (350)
Balance Sheet
Equity Share Capital Reserves & Surplus Net Worth Total Debt Minority Interest Capital Employed Fixed Assets Net Current Assets Investments Misc Deffered Tax Assets Total Assets
FY09
277 1,324 1,601 998 2,604 812 1,564 228 6 2,604
FY10
442 3,080 3,522 4,868 8,378 1,318 6,965 94 (12) 8,378
FY11E
505 6,375 6,879 6,210 13,078 1,363 11,621 94 (12) 13,078
FY12E
505 7,747 8,251 7,521 15,760 1,455 14,211 94 (12) 15,760
FY13E
505 9,418 9,923 8,616 18,527 1,535 16,898 94 (12) 18,527
Key Ratios
OPM (%) Net Margin (%) Yield (%) Debt/Equity Net Working Capital (Days) ROACE (%) ROE (%) EV/Sales (x) EV/EBITDA (x) P/E (x) P/CEPS (x) P/BV (x)
FY09
13.1 7.1 1.7 0.6 30.9 49.0 38.7 1.2 9.0 16.4 15.4 5.2
FY10
16.0 7.4 1.0 1.4 126.6 43.7 42.8 1.1 7.0 12.1 11.3 3.8
FY11E
14.1 6.4 1.0 0.9 178.8 26.6 24.7 1.0 7.0 11.8 11.0 2.2
FY12E
13.2 5.9 1.0 0.9 180.6 24.4 20.4 0.8 6.3 9.8 9.2 1.8
FY13E
12.9 6.1 1.0 0.9 187.5 23.7 20.7 0.7 5.8 8.0 7.6 1.5
P/E Band
Median PE v/s Daily PE 16X 14X 12X
525 425
Daily PE 20 15 10 5 0 Oct-10
Median PE
325 225 125 Oct-10
10X 8X
Nov -10
Jan-11
Feb-11
Apr-11
May -11
Nov -10
Jan-11
Feb-11
Apr-11
May -11
ankit.b@pinc.co.in
16
Company Update Sector: Material Handling BSE Sensex: 18,326
RESEARCH
ELECON ENGINEERING LTD.

Balanced Growth...
Elecon is a leading player in material handling equipment, and industrial gears. During 9MFY11, order inflows witnessed robust growth of 136% driven mainly by strong growth in the MHE segment. To expand its global reach, Elecon acquired certain operations of Benzlers-Radicon, a UK-based gear manufacturing company. Foray into the turnkey Power BoP space would be the key growth driver. Healthy order book and pipeline provides visibility Elecon has a healthy order book of ~Rs 14bn translating into a bookto-bill ratio of 1.2xFY11E revenue. After six dry quarters (Q3FY09 to Q4FY10) owing to the global slowdown, Elecons order momentum picked up during 9MFY11 and the company registered a robust 136% growth in order inflows. We believe healthy order backlog and good inflows expected in Gear division would underpin revenue growth. Expanding geographical reach inorganically In Q3FY11, Elecon acquired certain operations of Benzlers-Radicon, a UK-based company having manufacturing facilities in the UK, Sweden and the US. The acquisition would enable Elecon to expand its product range and geographical presence across Europe, US and South America by leveraging on brand and distribution channel. Plans to foray into power BoP space, a natural migration In line with other players, Elecon too plans to foray into the turnkey power BoP space. It plans to bid in consortium with players who have expertise in areas where Elecon lacks experience. Until date, Elecon has not won breakthrough orders in this space. However, we believe Elecon has the capabilities and wherewithal to win such orders. This would enable Elecon to achieve high revenue growth, though they would put pressure on margins. VALUATIONS AND RECOMMENDATION Elecon is expected to record 21% sales CAGR over FY11-FY13E. In the past, the company strategically avoided contracts with very low margins at the cost of growth. This gives us confidence that the company would be able to maintain margins. At CMP, the stock is attractively valued at 7.9x FY12E given healthy order book, robust order pipeline, increasing focus on Power BoP and sustainability of margins. We maintain BUY with a target price of Rs96 (11xFY12E).

23 May 2011
STOCK DATA
Market Cap Book Value per share Eq Shares O/S (F.V. Rs2) Free Float Avg Traded Value (6 mnths) 52 week High/Low Bloomberg Code Reuters Code Rs6.4bn. Rs42.7 92.9mn. 54.3% Rs15.3mn Rs104/59 ELCN IN ELCN.BO
Company Update
PERFORMANCE (%)
1M Absolute Relative (8.2) (2.4) 3M (4.5) (3.9) 12M (11.0) (19.8)
KEY FINANCIALS
FY09 Net Sales YoY Gr (%) Op.Profits OPM (%) Adj Net Profit YoY Gr (%) 9,551 15.6 1,490 15.6 575 (14.5) 6.2 17.5 22.4 11.2 1.2 7.9 FY10 10,464 9.6 1,496 14.3 502 (12.6) 5.4 15.8 16.7 12.8 1.1 7.5 FY11E 11,616 11.0 1,711 14.7 664 32.2 7.1 18.1 18.4 9.7 1.0 6.5 FY12E 13,814 18.9 2,035 14.7 807 21.6 8.7 17.2 18.8 7.9 0.9 6.0
Rs mn FY13E 17,021 23.2 2,507 14.7 1,048 29.8 11.3 18.5 20.7 6.1 0.8 5.2 17
Elecon 120 100 80 60 40 May -10 BSE (Rebased)
KEY RATIOS
Aug-10
Nov -10
Feb-11
May -11
RESEARCH
Elecon Engineering Ltd.
Current order book provides visibility

The current order book of the company stands at ~Rs 14.2bn (excluding the inactive order of Rs3.2bn from Brahmani Steel). This translates into a book-to-bill ratio of 1.2xFY11E revenue, providing full visibility for FY12 earnings. In the current order book, the share of MHE division stands at 80% and remaining 20% is contributed by the gear division.
Order book break-up (Rsbn)

MHE 24 18 14 12 6 2.0 0 FY08 FY09 FY10 FY11E FY12E FY13E
Gear 21 18 14
11
10 3.5 4.4 5.1
2.4
2.5
Robust order inflows post economic meltdown After almost six dry quarters (Q3FY09 to Q4FY10) owing to the global slowdown, Elecons order momentum picked during 9MFY11 and the company registered a robust 136% growth in order inflows. This was mainly led by 259% growth (on a low base) in MHE division and 47% growth in gear division.
Order inflow break-up (Rsbn)

MHE 16.0 12.6 12.0 9.1 8.0 4.0 0.0 FY08 FY09 FY10 FY11E FY12E FY13E
Gear 12.7 11.0 7.8 13.3
6.1 3.9 4.3 3.1 4.4
6.8
In Jan11, the management indicated that there were live enquiries worth Rs50bn but sighted concern on slow conversion of enquiries into order book.
ankit.b@pinc.co.in
18
RESEARCH
Expanding geographical reach inorganically

In Q3FY11, Elecon acquired certain operations of Benzlers-Radicon, a UK-based company having manufacturing facilities in the UK, Sweden, Thailand and the United States. Gross value of this acquisition on a going concern basis was GBP18.4mn. The acquisition would enable Elecon to expand its product range and geographical presence across Europe, the US and South America by leveraging Benzlers-Radicons brand and distribution channel. Benzlers-Radicon has over 60 years of experience with a reputation for being market leaders in the design and manufacturing of screw jacks, shaft mounted gearboxes and industrial reducers. The acquisition has been done with a view to: Achieve higher volume with Radicon range of products Improve market reach for Elecon products through Benzlers-Radicon Gears To benefit from the Benzlers-Radicon brand name to pursue and penetrate deeper in newer markets like South America, Russia, South Africa and Australia The acquired companies did a turn over of GBP22mn (Rs.1.6bn) in CY10. Management is expecting a turnover of over Rs2bn in FY12 with OPM of 8-10%. However, due to lack of clarity, we have not factored in the contribution from the acquired business in our estimates.
ankit.b@pinc.co.in
19
RESEARCH
Key Growth Drivers

Material Handling Equipments (MHE) Division The market growth prospects for material handling industry looks promising and the industry is expected to grow in line with the growth rate expected in the core industries such as power, steel, cement, coal, fertilizer, mining, ports and petrochemicals. EEL has strong project execution capabilities in MHE and we believe EEL would be the key beneficiary from any uptick in economy and industrial capex. Power BoP space could be key growth driver In line with moves by other players, Elecon too plans to foray into the turnkey power BoP space to spread its wings across the value chain. It plans to bid in consortium with players who have expertise in areas where Elecon lacks experience. Until date, Elecon has not won breakthrough orders in the Power BoP space. However, we believe Elecon has the capabilities and wherewithal to win such orders in the future. Orders in this space would enable Elecon to achieve high revenue growth, though they would put pressure on margins. The MHE division registered sales CAGR of 15% in FY07-10 and we expect it to witness a CAGR of 22% (FY11-13E). The current order book of the division (excluding the inactive order from Brahmani Steel worth Rs3.2bn) stands at Rs10.7bn. (1.5xFY11E revenue of the division)
Industrywise Sales mix in MHE division

Pow er 90 75 60 45 30 15 0 FY08
cement
Mines 73
Ports
Wind Mill
Steel
Others
49
56
21 9 1 4 15 2 11 4 1 FY09 1 9 10 2 4 5 FY10 2
21 3
ankit.b@pinc.co.in
20
RESEARCH
Gear Division EEL is a leading industrial gear manufacturing company with a proven track record of supplying it to core sectors like power, mining, sugar, cement, chemical, fertilizer, Steel, plastic, rubber and marine. Company commands highest market share of 26% in domestic market followed by Shanthi Gears and Premium Transmission (17% market share each).
Market share
Others 24% NAW 6% Elecon 26%
Flender 10% Shanthi Gear 17%
Premium Trans 17% Source: Company, PINC Research
The gear division provides cushion against any slow down due to its well diversified industrial presence. We believe healthy order backlog, strong margins and good inflows expected in Gear division would underpin revenue growth for Elecon. The Gear division registered sales CAGR of 11% (FY07-10) and we expect it to witness a CAGR of 20% (FY11-13E). The order book of the division stood at Rs3.5bn.
Industry wise Sales mix of Gear Division

Cement Plastic & Rubber Marine 25 21 20 15 10 5 0 FY08
Material Handling/Pow er Lift Gears Mining 22 15
Sugar Steel Conv ersion Others 23
Sponge Iron Process/Fertilizer
15 10 6 11 7 9 4 1 1
12
11 8 8 5
13 10 3 5 3 9 10 7 9 6
15 11 3 4 3
FY09
FY10
ankit.b@pinc.co.in
21
RESEARCH
Restructuring to bring synergy

Elecon had initiated a group restructuring process in FY10 with a view to: 1. create a simple, lean and tax efficient structure, 2. provide financial flexibility to raise money, 3. bring synergies to achieve higher growth and 4. enhance shareholders value A brief about group companies business profiles: Eimco Elecon (EEIL) - EEIL is in business of Manufacturing, Marketing and Servicing Equipment for Mining and Construction. Its product portfolio includes underground mining machinery viz. Air Powered Rocker Shovels, Electro hydraulic Side Dump Loaders and Electro Hydraulic and Air Powered Load Gaul Dumpers. EEIL also manufactures Air Motors, hydraulic Drilling and Roof bolting jumbos and Auger-cum-Drills and Tugger Hoists. Power Build Ltd. (PBL) PBL is engaged into production of Geared Motors and gear boxes in technical collaboration with M/s. Roudolf Muchna KG of West Germany. PBL has executed a large number of orders in core sector industries like Fertilizers, Cement, Coal, Power Generation, Chemicals and Steel Plants. EMTICI Engineering Ltd. (EEL) - EEL is a Sole Selling Agent of Elecon Engineering Co. Ltd., EEIL and PBL. It also carries out fabrication & erection activity for Coal Handling Plants & other Material Handling Equipment and provide after sale service. Prayas Engineering Ltd. (PEL) PEL was initially set up to cater to the non-ferrous casting requirements of Elecon and other industries. However, gradually it forayed into production of phosphor bronze, gunmetal, aluminium bronze, high-tensile brass, aluminium-alloy castings and various grades of steel castings. However, till date there has been no progress on this matter and it remains an overhung. Management has indicated that something concrete will happen in the near future. We believe the restructuring would add growth, value and bring synergy to the consolidated entity.
ankit.b@pinc.co.in
22
RESEARCH
Financial Analysis
Healthy margins At the time of economic meltdown, the company strategically avoided contracts with very low margins at the cost of growth. This gives us confidence that the company would be able to maintain margins going forward. However, foray into high value and low margin power BoP might put pressure on margins. Working capital and return ratios The working capital of the company is on a higher side and we dont expect the working capital situation to improve in the near future. Return ratios are expected to stabilize at current levels.
Non Cash working Capital as % of sales

56% 55% 54%
52%
50% 46% 46%
49%
48%
44%
40% FY08 FY09 FY10 FY11E FY12E FY13E

Return Ratios
RONW 35 30 25 20 15 FY08
ROCE
32
22 22 17 FY09 17 16 FY10 18 18 FY11E 19 17 FY12E
21 18 FY13E
Valuations and Recommendation We expect Elecon to deliver 21% consolidated sales CAGR over FY11-FY13E. At CMP, the stock is attractively valued at 7.9x FY12E given healthy order book, robust order pipeline, increasing focus on Power BoP and sustainability of margins. We maintain BUY with a target price of Rs96 (11xFY12E).
ankit.b@pinc.co.in
23
RESEARCH
Elecon Engineering ltd.

Net Sales Growth (%) EBIDTA (exc. other income) Growth (%) Other Income (-) Depreciation EBIT (-) Interest PBT & E/O Items E & O Items PBT (-) Tax Provision Reported PAT Minority Interest Adj Profit Dil. EPS Growth (%)
FY09
9,551 15.6 1,490 14.2 96 221 1,365 484 881 881 306 575 575 6.2 (14.5)
FY10
10,464 9.6 1,496 0.3 248 331 1,412 509 903 (160) 744 241 502 502 5.4 (12.6)
FY11E
11,616 11.0 1,711 14.4 334 386 1,660 463 1,196 (205) 991 327 664 664 7.1 32.2
FY12E
13,814 18.9 2,035 18.9 149 421 1,763 558 1,205 1,205 398 807 807 8.7 21.6
FY13E
17,021 23.2 2,507 23.2 171 462 2,216 652 1,564 1,564 516 1,048 1,048 11.3 29.8
Cash Flow Statement

Profit Before Tax Depreciation Net Interest Exp Tax Paid (Inc)/Dec in working capital Other Items Cash from Operation (a) Purchase of Fixed Assets (Purchase)/Sale of Invest. Other Items Issue of new Capital Net borrowing from bank Dividend Interest Paid Cash from Fin ( c) Net change in cash (a+b+c)
FY09
1,368 221 (53) (259) (566) 2 713 (1,400) (14) 61 1,828 (162) (490) 1,176 535
FY10
1,257 331 (19) (172) 339 (35) 1,701 (841) 212 28 (602) (705) (161) (455) (1,322) (222)
FY11E
1,196 386 463 (327) (587) 1,131 (501) 47 (454) (139) (162) (463) (765) (88)
FY12E
1,205 421 558 (398) (1,468) 319 (600) (600) 1,002 (162) (558) 281 -
FY13E
1,564 462 652 (516) (1,534) 628 (600) (600) 887 (162) (652) 72 100
Cash from Investment (b) (1,353)
Balance Sheet
FY09
186 2,568 2,754 5,921 9,003 3,110 5,767 109 26 328 9,003
FY10
186 3,075 3,261 5,216 8,879 3,622 5,174 57 26 403 8,879
FY11E
186 3,782 3,968 5,077 9,447 3,737 5,674 10 26 403 9,447
FY12E
186 4,427 4,613 6,078 11,094 3,916 7,141 10 26 403 11,094
FY13E
186 5,313 5,498 6,965 12,866 4,054 8,775 10 403 12,866
Key Ratios
FY09
15.6 6.0 10.9 2.1 194.4 17.5 22.4 1.2 7.9 11.2 8.0 2.3
FY10
14.3 4.7 10.9 1.6 164.7 15.8 16.7 1.1 7.5 12.8 7.7 2.0
FY11E
14.7 5.6 10.9 1.3 166.5 18.1 18.4 1.0 6.5 9.7 6.1 1.6
FY12E
14.7 5.8 10.9 1.3 178.3 17.2 18.8 0.9 6.0 7.9 5.2 1.4
FY13E
14.7 6.1 10.9 1.3 177.1 18.5 20.7 0.8 5.2 6.1 4.2 1.2
P/E Band
Median PE v/s Daily PE
400 300 200 100 0 Apr-07
PE Daily 60 45
20X 16X 12X 8X 4X
Median PE
30 15 0 Apr-07
Apr-08
Apr-09
Apr-10
May -11
Apr-08
Apr-09
Apr-10
May -11
ankit.b@pinc.co.in
24
RESEARCH
MCNALLY BHARAT & ENGINEERING LTD.

Tripped...!!!
McNally Bharat (MBE) is a turnkey contractor in Port handling, coal and ash handling, steel industry, Power BoP, and Mineral Processing. It is well placed to cash in on Government of Indias (GoIs) thrust on infrastructure development. To increase the presence in cement, coal and minerals processing, the company acquired Humboldt Wedag Coal & Mineral Technology Gmbh, Germany. MBEs margins are expected to remain under pressure owing to slowdown in order inflows and increased competition. Higher order inflows would be a key trigger for re-rating of the stock. Expands product portfolio inorganically In Q2FY09, MBE acquired Humboldt Wedag Coal & Mineral Technology (Humboldt) Gmbh for Rs800mn. Humboldt is a leading supplier of equipment and engineering services for cement, coal and mineral processing industry. This will enhance McNallys position in the cement and mining industry.
STOCK DATA
Market Cap Book Value per share Eq Shares O/S (F.V. Rs10) Free Float Avg Traded Value (6 mnths) 52 week High/Low Bloomberg Code Reuters Code Ankit Babel +91-22-6618 6551 ankit.b@pinc.co.in Vinod Nair +91-22-6618 6379 vinod.nair@pinc.co.in

23 May 2011
Company Update
Power BoP segment key growth driver With huge investments planned by GoI in power generation, Power BoP space offers immense opportunity. McNally would be leveraging its vast experience in the coal and ash handling segment, which forms a major part of the BoP segment. We believe turnkey projects in power BoP segment would be a key growth driver for the company. Margins to remain under pressure We remain skeptical about margin improvement given that McNally is aiming for higher growth through newer segments (BoP, Oil & Gas, and Cement) where it may have to compromise on margins to win its maiden orders. Further, increased overheads, slowdown in order inflows and intensifying competition would impact margins. VALUATIONS AND RECOMMENDATION MBEs current order book is healthy at Rs40bn on standalone basis and Rs44bn on a consolidated basis, translating into a book-tobill ratio of 1.9xFY11E, which provides good revenue visibility. We believe higher order inflows would be key trigger for re-rating of the stock. At CMP, the stock is valued at 6.8x FY12E. We remain positive on McNallys long-term prospects and maintain our BUY recommendation with a target price of Rs275 (10xFY12E).
Rs5.7bn. Rs106 31.1mn. 69.4% Rs7.6mn Rs319/185 MCNA IN MCNL.BO
PERFORMANCE (%)
Absolute Relative 1M (13.7) (8.2) 3M (13.5) (14.0) 12M (37.0) (43.1)
KEY FINANCIALS
FY09 Net Sales YoY Gr (%) Op.Profits OPM (%) Adj Net Profit YoY Gr (%) 11,149 101.0 1,032 9.3 439 75.0 14.1 28.5 27.5 13.0 0.7 7.2 FY10 18,055 61.9 1,388 7.7 511 16.5 16.4 23.4 25.0 11.2 0.4 5.7 FY11P 23,677 31.1 1,631 6.9 756 47.9 24.3 20.0 27.0 7.6 0.4 5.5 FY12E 27,916 17.9 2,007 7.2 843 11.5 27.1 20.6 24.2 6.8 0.3 4.7
Rs mn FY13E 31,939 14.4 2,296 7.2 1,026 21.7 33.0 21.5 23.7 5.6 0.3 4.0 25
MBE 500 400 300 200 100 May -10 BSE (Rebased)
KEY RATIOS
Aug-10
Nov -10
Feb-11
May -11
RESEARCH
McNally Bharat & Engineering Ltd.
Increasing Global Presence

In Q2FY09, MBE acquired KHD Humboldt Wedag International GMBHs wholly-owned subsidiary Humboldt Wedag Coal & Mineral Technology (Humboldt) Gmbh (CMT) The acquisition has been done through MBE Mineral Technologies Pvt Ltd., 100% subsidiary of MBE for a gross consideration of USD16mn. This strategic acquisition provides MBE access to technology in the field of coal washery, iron ore beneficiation and other nonferrous beneficiation system. It will also enable the company to expand its geographical presence since acquired businesses has presence in east Europe, China, Russia, South Africa and India. At the end of FY11, CMT division had an order book of Rs1.8bn and achieved revenue of Rs3.1bn. We expect sales CAGR of 10% (FY11-13E) and believe margins should stabilize at ~8% at operating level.
Revenue growth and margins of CMT and German business

Sales (Rs mn) 4,000 3,000 2,000 1,000 FY10
OPM (%) 12 8.0 8.0 9 6 3 0
7.5 4.2
FY11
FY12E
FY13E
ankit.b@pinc.co.in
26
RESEARCH
Expands product portfolio inorganically

In FY09, MBE acquired 87.3% stake (including open offer) in McNally Sayaji Engineering (MSEL) for a total consideration of Rs755mn. Post acquisition MBE demerged its product division engaged in the business of manufacture and procuring equipments for various engineering and infrastructure projects and having manufacturing facilities at Kumardhubi, Asansol and Bangalore and merged it into MSEL. On account of this demerger, the shareholding of MBE increased to 93.3% in MSEL. Further to fund the expansion plans, MSEL did private placement of shares to promoters, promoter group and strategic investors in FY10. This resulted in dilution of holdings in MSEL by MBE to 70.4%. The acquisition enabled MBE to increase its product offering in the field of crushing, screening and milling equipments, pressure vessels, material handling equipment, steel plant equipment and process equipment like flotation cell, thickners and slurry pumps. Company plans to expand the manufacturing capacity at Vadodara plant in phased manner. Under the plan, company has acquired ~160k sq mtrs land to set up facilities for manufacturing material handling equipments for ports, mines and power sector, equipments for construction and road building industries, hydrocarbons, nuclear power and chemical industry along with setting up of a foundry with capacity of 3000TPA. In Asansol, the company has set up a new fabrication plant to cater to steel and power sector. For FY11, MSEL witnessed a turnover of Rs3bn down by 4%. OPM contracted by 400bps to 14% and resultantly PAT was down by 20% to Rs186mn. The margins were under pressure due to change in the product mix. The share of customised products increased, where margins are low as design is provided by the customer. We expect sales CAGR of 15% (FY11-13E) in MSEL and believe margins should stabilise at current levels.
Revenue growth and margins of MSEL

Sales (Rs mn) 4000 19.8 3000 2000 10 1000 0 FY09
OPM (%) 25
19.0 14.2 14.0 14.5
20 15
5 0 FY10 FY11 FY12E FY13E
ankit.b@pinc.co.in
27
RESEARCH
Future growth drivers

Power BoP segment provides immense opportunity Leveraging on the vast experience in setting up coal and ash handling plants and in house manufacturing facility of equipments for ash, coal and water systems, MBE forayed into the space of EPC in power balance of plant (BoP) in FY10. Subsequently, it bagged its first break through order in power BoP space worth Rs4.14bn from Ideal Energy Projects Ltd in Q2FY10 followed by Rs8.27bn order for 2x250MW Satpura TPS in Q1FY11. With huge investments planned by GoI in thermal power generation in the XIIth plan, Power BoP space offers immense opportunity. We believe turnkey projects in power BoP segment would be a key growth driver for the company. Company to benefit from any uptick in capex cycle In addition to power, MBE would also be a beneficiary of any uptick in the capex cycle in the metals segment. MBE has a proven track record for successfully executing the orders from companies present in the metals and minerals space (both ferrous and non-ferrous). The steel SBU has a strong presence in the sector to execute turnkey projects like sinter plant, by product plan, material handling and coke oven battery to name a few. Technology tie up with German company Humboldt Wadag Gmbh for setting up cement plants would set the company to foray into cement EPC business. Management is expecting orders worth Rs8-10bn from cement EPC business in FY12. However, currently due to unfavourable economic environment plagued with high interest rates and lack of reforms, there has been dearth of orders in the industrial space. But we believe orders should pick up once interest rates get stabilise in due course.
ankit.b@pinc.co.in
28
RESEARCH
Margins to remain under pressure

Historically, MBE had witnessed a healthy growth in topline but its margins have always remained under pressure. We remain skeptical on margin improvement going forward on account of increased competition, slowdown in order inflows and aggressive bidding by the company to get access into new segments like BoP, cement and Oil & Gas. MBE has multiple sector exposure and margins are different in each sector. Where margins are high in mineral processing segment, they are low in steel and power BoP segment. Lack of high margin but low value processing orders and high share of low margin but high value orders from power and steel sector will continue to adversely impact the consolidated margins. Price variation clause to provide some cushion Most of the orders in the current order book have embedded price variation clause (with a ceiling) and therefore, would provide a cushion to margins against any spike in raw material prices. However, being a labour intensive business, any shortage in availability of construction labour can surprise negatively.
Margin Performance
OPM (%) 10.0 8.0 6.0 4.0 2.0 0.0 FY08 FY09 FY10 FY11 FY12E FY13E 4.4 3.2 3.4 3.2 3.4 9.3 8.2 7.7 6.9 7.2 7.2 NPM (%)
4.5
ankit.b@pinc.co.in
29
RESEARCH
Financial Analysis
Healthy order book The current order book of the company stands healthy at Rs40bn on a standalone basis and Rs44bn on a consolidated basis translating into a book to bill ratio of 1.9xFY11 consolidated revenue providing revenue visibility. Power sector dominates the order book with a share of 32%.
Order Book (Standalone)

Order Book (Rs mn) 40000 28 30000 16 20000 10000 0 FY09
Grow th (%) 28 21 14
7 4
7 0
FY10
FY11
FY12E
FY13E
Break up of Order book FY11

Material Handling 17% Non-Ferrous 4% Power 32% Steel & Mines 14%
Infrastructure 23% Source: Company, PINC Research
Port 10%
ankit.b@pinc.co.in
30
RESEARCH
Continuously moving across the value chain In addition to acquisition of Sayaji Engineering and Humboldt Wadags CMT business, MBE has entered into a 70:30 JV with Singapore based company Hiflux in January 2010 for water desalinization projects for industrial purposes. However, till date company has not bagged any break through order in this space. Net Working capital best amongst the peers The business of the company is highly working capital intensive plagued with high debtors. However, MBE very efficiently manages its working capital by squeezing the most from the creditors. Its non cash net working capital stands at just 15% of sales which is best amongst the peers. We expect slight pressure on working capital going forward but believe it would still be the best amongst peers.
Non Cash Working Capital as % of sales

20% 15% 15% 10% 10% 13% 15% 16% 17%
5%
0% FY08 FY09 FY10 FY11 FY12E FY13E

Return Ratios
RONW
31.0 27.0 23.0 19.0 15.0 FY08
ROCE
28.5 27.0 27.5 20.7 20.1 25.0 23.4 20.0 20.6 21.5 24.2 23.7
FY09
FY10
FY11
FY12E
FY13E
Valuation and Recommendation With exposure towards multiple sectors, we believe McNally is well placed to encash any uptick in the economy and industrial capex. Consolidated sales and PAT are expected to witness a CAGR of 16% (FY11-13E). At CMP of Rs184, MBE is attractively valued at 6.8x FY12E. We maintain our buy recommendation with a target price of Rs275 (10xFY12E).
ankit.b@pinc.co.in
31
RESEARCH

Net Sales Growth (%) EBIDTA (exc. OI) Growth (%) Other Income (-) Depreciation EBIT (-) Interest PBT & E/O Items E & O Items PBT (-) Tax Provision Reported PAT Minority Interest Adj Profit Growth (%) Dil. EPS
FY09
11,149 101.0 1,032 127.7 17 95 955 362 592 189 781 288 493 54 439 75.0 14.1
FY10
18,055 61.9 1,388 34.4 99 164 1,323 426 898 16 914 331 583 72 511 16.5 16.4
FY11P
23,677 31.1 1,631 17.5 120 216 1,535 435 1,100 1,100 303 798 42 756 47.9 24.3
FY12E
27,916 17.9 2,007 23.0 95 246 1,856 520 1,336 1,336 441 895 52 843 11.5 27.1
FY13E
31,939 14.4 2,296 14.4 110 265 2,141 520 1,621 1,621 535 1,086 60 1,026 21.7 33.0
Cash Flow Statement

Profit Before Tax Depreciation Net Interest Exp Tax Paid Other Items Cash from Operation (a) Purchase of Fixed Assets (Purchase)/Sale of Invest. Other Items Issue of new Capital Net borrowing from bank Dividend Interest Paid Cash from Fin ( c)
FY09
820 95 192 (137) (159) (373) (1,471) 136 10 1,603 (39) (176) 1,387
FY10
898 164 395 (266) (977) 137 351 (700) (9) (235) (944) 328 1,370 (46) (400) 1,250 657
FY11P
1,100 216 435 (303) (1,364) 85 (541) (541) 940 (55) (435) 450 (6)
FY12E
1,336 246 520 (441) (934) 727 (591) (591) 199 (55) (520) (376) (240)
FY13E
1,621 265 520 (535) (700) 1,171 (391) (391) (205) (55) (520) (780) -
(Inc)/Dec in working capital (1,184)
Cash from Investment (b) (1,325)
Net change in cash (a+b+c) (312)
Balance Sheet
FY09
311 1,766 2,077 2,135 123 4,478 2,369 2,094 15 142 4,478
FY10
311 2,318 2,629 3,485 534 6,822 3,249 3,545 27 174 6,822
FY11P
311 3,019 3,330 4,425 576 8,505 3,574 4,903 27 174 8,505
FY12E
311 3,807 4,118 4,624 628 9,544 3,919 5,597 27 174 9,544
FY13E
311 4,779 5,090 4,419 687 10,370 4,045 6,298 27 174 10,370
Key Ratios
FY09
9.3 4.4 0.7 1.0 54.1 28.5 27.5 0.7 7.2 13.0 9.7 2.8
FY10
7.7 3.2 0.8 1.3 45.9 23.4 25.0 0.4 5.7 11.2 7.7 2.2
FY11P
6.9 3.4 0.8 1.3 55.7 20.0 27.0 0.4 5.5 7.6 5.6 1.7
FY12E
7.2 3.2 0.8 1.1 59.3 20.6 24.2 0.3 4.7 6.8 5.0 1.4
FY13E
7.2 3.4 0.8 0.9 59.7 21.5 23.7 0.3 4.0 5.6 4.2 1.1
P/E Band
Median PE v/s Daily PE
800 600 400 200 0 Apr-06

20X
PE Daily 20 15
16X 12X 8X 4X
Median PE
10 5 0 Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
May -11
Apr-07
Apr-08
Apr-09
Apr-10
May -11
ankit.b@pinc.co.in
32
RESEARCH
TRF LTD.
On Rocky Terrain...
TRF manufactures bulk material handling equipment, Port and Yard equipment, and provides turnkey bulk handling services. The company aims to capture a small share in the growing turnkey power BoP space. However, owing to an unfavorable macroeconomic environment plagued with high interest rates, TRF faces a slowdown in order inflows. To derisk the business, the company diversified into the automotive space through the inorganic route. Healthy sales growth and margin improvement in the automotive business and renewed traction in order inflows in core business remain key growth drivers for the company. Concerns on order inflows in the core business TRF faces a massive slowdown in order inflows in the core business of material handling owing to the unfavourable macroeconomic environment plagued with high interest rates, project delays and increased competition. Though the current order book at Rs15.4bn (2.1xFY11 standalone revenue) provides visibility, the company seems to be making desperate efforts to win orders to improve visibility for FY13, which might put pressure on pricing and margins. De-risking by diversifying into the automotive space TRF de-risked its business model by diversifying into the automotive space by acquiring a majority stake in York Transportation Equipment Asia Pte (YTEA) and Dutch Lanka Trailers (DLT). YTEA manufactures and distributes trailer axles, ABS, air suspensions, landing gears and wheel couplers. YTEA commands ~30% market share in India. DLT manufactures trailers and has market reach in 30 countries. Healthy sales growth led by increased capacities and expected improvement in margins would be key growth drivers for the company. VALUATIONS AND RECOMMENDATION High interest rate, slowdown in order inflows and increased competition are expected to impact margins in the EPC business adversely. We expect consolidated sales CAGR of 17% (FY1113E). Key triggers for TRF remain acceleration in order inflow, especially in the power BoP segment and margin improvement in the automotive space. At CMP the stock trades at 10.5xFY12E and 9.5xFY13E earnings. We maintain our SELL recommendation with a target price of Rs378 (10xFY12E).
SELL CMP Rs398 TP Rs378

23 May 2011
STOCK DATA
Market Cap Book Value per share Eq Shares O/S (F.V. Rs10) Free Float Avg Traded Value (6 mnths) 52 week High/Low Bloomberg Code Reuters Code Rs4.4bn. Rs132 11mn. 60.4% Rs29.9mn Rs1118/390 TRF IN TRF.BO
Company Update
PERFORMANCE (%)
1M Absolute Relative 17.0 21.3 3M 22.2 16.6 12M (46.5) (50.5)
KEY FINANCIALS
FY09 Net Sales YoY Gr (%) Op.Profits OPM (%) Adj Net Profit YoY Gr (%) 7,246 61.3 881 12.2 405 1.9 73.6 39.5 37.3 5.4 0.4 3.3 FY10 8,673 19.7 823 9.5 467 15.4 42.5 25.7 34.4 9.4 0.7 7.4 FY11P 11,151 28.6 221 2.0 3 (99.5) 0.2 5.1 0.2 1714.8 0.6 32.3 FY12E 13,737 23.2 980 7.1 416 16167.8 37.8 16.1 25.3 10.5 0.6 8.2
Rs mn FY13E 15,262 11.1 1,120 7.3 475 14.3 43.2 16.1 23.0 9.2 0.5 7.3 33
TRF 1,500 1,200 900 600 300 May -10 BSE (Rebased)
KEY RATIOS
Aug-10
Nov -10
Feb-11
May -11
RESEARCH
TRF Ltd.
Concerns on order inflows in the core business

TRF faces a massive slowdown in order inflows in the core business of material handling owing to unfavourable macroeconomic environment and high interest rates, which resulted in delay in projects. Although the current order book at Rs15.4bn provides visibility, the company seems desperate to win orders to improve FY13 visibility. Such efforts in our view would encourage TRF for aggressive bidding which might put pressure on pricing and margins. Plans to foray in Power BoP space but in a limited manner Similar to other players, TRF too decided to foray into the growing Power BoP segment but till date TRF has not bagged any order. Further it has strategically decided not to bid for high ticket size orders in this space. Rather, it has decided to focus on orders worth Rs5bn or less and that too for private players. In our view, this would reduce the overall scope for the company in power BoP space as lot many high ticket size orders are expected to be tendered going forward. Areas where TRF lacks expertise, it will bid in consortium with other players having expertise in that area. TRF has already short listed its consortium partners. Declining order book reduces visibility In the last three quarters TRF bagged no major orders. The order inflow stood merely Rs5.4bn for FY11. The current order book for the company on a standalone basis at Rs15.4bn (2.1xFY11 standalone revenue) was down by 13%. Project division contributed over 90% of the order book.
Order book (Rsmn)

20000 13600 10000 10000 17730 15380 15000 13976 14477
5000
0 FY08 FY09 FY10 FY11 FY12E FY13E

ankit.b@pinc.co.in
34
RESEARCH
TRF Ltd.
De-risking the business model by diversifying into the automotive space

TRF de-risked its business model by diversifying into the automotive space by acquiring a majority stake in York Transportation Equipment Asia Pte (YTEA), Singapore in October 2007 and Dutch Lanka Trailers (DLT) Manufacturers, Sri Lanka in July 2009. The gross consideration paid for acquiring YTEA was S$16.6mn and for DLT was USD8.67mn. Capacity expansion to drive growth of the subsidiaries York Transport YTEA manufactures and distributes trailer axles, ABS, air suspensions, landing gears and wheel couplers. YTEA has a capacity of 36k axels with manufacturing facilities located in China, Sri Lanka and India. It has set up a plant in Talegaon near Pune to manufacture 24k axels p.a. (on a single shift basis) initially and to ramp upto 96k axels (on a two shift basis) gradually. YTEA currently commands a market share of ~30% in India. YTEA reported sales of ~USD55mn in FY11 and management expects to achieve sale of USD80mn in FY12. Healthy sales growth on account of increased capacities and expected improvement in margins would be key growth drivers for the company. Dutch Lanka Trailer (DLT) DLT (Sri Lanka) is engaged in the business of manufacturing and supply of trailers with manufacturing facilities located at Sri Lanka, Oman and India. It exports trailers to over 30 countries. Current capacities stand at 6k trailers p.a. DLT Manufacturers (Sri Lanka) entered into 50:50 JV with Tata International Limited in February, 2005 to manufacture and sell trailers exclusively for Tata Motors. Post acquisition of majority stake in DLT Manufacturers (Sri Lanka), TRF holds 25% stake in the JV. The current capacity of this JV is 3k trailers and company plans to expand it to 6k trailers by FY12. In FY11, Tata DLT sold 2200 trailers and management expects a growth of 50% in FY12. Aditya Automotive Applications (AAA) In June 09, TRF entered into a JV with Tata Capital and Jasper Industries Pvt. Ltd to form AAA to provide end to end solutions through fabrication and machining for vehicles to be used as tippers, load bodies and refrigerated bodies. It has a manufacturing facility at Lucknow with a capacity of 6000 bodies p.a. In 9MFY11, AAA did a turnover of Rs160mn.
ankit.b@pinc.co.in
35
RESEARCH
TRF Ltd.
The automotive business registered sales of Rs3.9bn in FY11 and PBIT margin of 3.9%. We expect sale CAGR of 24% (FY11-13E) and improvement in margins by ~200bps. Financial Analysis: We expect company to deliver consolidated sales CAGR of 17% (FY11-13E) driven by 24% sales CAGR in automotive business. However, margins are expected to remain under pressure on account of slowdown in order inflows and increased competition. Any improvement in the margins of the automotive business would be more than offset by decline in margins in the core EPC business. Return ratios are expected to decline on account of lower margins.
Margin performance
OPM (%) 16.0 12.1 12.0 8.8 8.0 4.0 FY08 FY09 FY10
NPM (%)
12.2 9.5 7.1 5.6 5.3 2.0 0.0 FY11 FY12E FY13E 3.0 3.1 7.3
Return Ratios
RONW (%) 50 40 30 20 10 0 FY09
ROCE (%)
39 34 37 26 5 0 FY10 FY11 FY12E FY13E 25 16 23 16
Key triggers for TRF remain acceleration in order inflow, especially in the power BoP segment and margin improvement in the automotive space. At CMP the stock trades at 10.5xFY12E and 9.2xFY13E earnings. We maintain our SELL recommendation with a target price of Rs378 (10xFY12E).
ankit.b@pinc.co.in
36
RESEARCH
TRF Ltd.
Net Sales Growth (%) EBIDTA (exc. other income) Growth (%) Other Income (-) Depreciation EBIT (-) Interest PBT & E/O Items E & O Items PBT (-) Tax Provision PAT Before Minority Int. Minority Interest Adj Profit Growth (%) Dil. EPS
FY09
7,246 61.3 881 61.9 19 38 842 77 766 (133) 652 247 405 405 1.9 74
FY10
8,673 19.7 823 (6.6) 110 61 761 114 647 (18) 739 251 488 20 467 15.4 42
FY11P
11,151 28.6 221 (73.1) 110 85 247 176 71 71 52 19 16 2.6 (99.5) 0.2
FY12E
13,737 23.2 980 343.4 70 95 885 260 625 695 229 466 50 416 16,167.8 38
FY13E
15,262 11.1 1,120 14.3 76 105 1,015 278 737 813 268 545 70 475 14.3 43
Cash Flow Statement

Profit Before Tax Depreciation Net Interest Exp Tax Paid (Inc)/Dec in working capital Other Items Cash from Operation (a) Purchase of Fixed Assets (Purchase)/Sale of Invest. Other Items Cash from Investment (b) Issue of new Capital Net borrowing from bank Dividend Interest Paid Cash from Fin ( c) Net change in cash (a+b+c)
FY09
651 39 77 (227) (583) (4) (47) (124) 3 5 (116) 351 (64) (79) 207 44
FY10
739 62 124 (324) (521) 1 81 (268) (475) 1 (742) 33 1,049 (76) (125) 881 220
FY11P
71 85 176 (52) (572) (293) (344) 4 (180) (520) 1,117 (26) (176) 916 103
FY12E
695 95 260 (229) (1,016) (195) (400) (400) 610 (26) (260) 324 (271)
FY13E
813 105 278 (268) (578) 349 (200) (200) 154 (26) (278) (149) -
Balance Sheet
Equity Share Capital Reserves & Surplus Net Worth Total Debt Minority Interest Capital Employed Fixed Assets Net Current Assets Investments Goodwill Deffered Tax Assets Total Assets
FY09
55 1,189 1,244 934 408 2,579 367 2,033 37 142 7 2,579
FY10
110 1,362 1,472 2,166 597 4,208 753 2,953 37 465 27 4,208
FY11P
110 1,338 1,448 3,283 687 5,400 1,012 3,612 33 744 17 5,400
FY12E
110 1,728 1,838 3,893 737 6,450 1,316 4,357 33 744 17 6,450
FY13E
110 2,177 2,287 4,047 807 7,124 1,412 4,935 33 744 17 7,124
Key Ratios
FY09
12.2 5.6 3.0 0.8 90 39.5 37.3 0.4 3.3 5.4 4.9 1.8
FY10
9.5 5.3 1.9 1.5 105 25.7 34.4 0.7 7.4 9.4 8.3 3.0
FY11P
2.0 0.0 0.5 2.3 100 5.1 0.2 0.6 32.3 1714.8 50.1 3.0
FY12E
7.1 3.0 0.5 2.1 108 16.1 25.3 0.6 8.2 10.5 8.6 2.4
FY13E
7.3 3.1 0.5 1.8 111 16.1 23.0 0.5 7.3 9.2 7.6 1.9
P/BV Band
Median PBV v/s Daily PBV
1200
5X
Daily PBV 16 12 8 4 0 Apr-07
Median PBV
900
4X 3X 2X
600 300
1X
0 Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Mar-08
Mar-09
Mar-10
Mar-11
ankit.b@pinc.co.in
37
RESEARCH
T E A M
EQUITY DESK
Sadanand Raje Head - Institutional Sales Technical Analyst sadanand.raje@pinc.co.in 91-22-6618 6366
RESEARCH
Vineet Hetamasaria, CFA Nikhil Deshpande Tasmai Merchant Vinod Nair Ankit Babel Hitul Gutka Subramaniam Yadav Madhura Joshi Satish Mishra Urvashi Biyani Naveen Trivedi Rohit Kumar Anand Ronak Bakshi Namrata Sharma Sakshee Chhabra Bikash Bhalotia Harleen Babber Dipti Vijaywargi Sushant Dalmia, CFA Suman Memani Abhishek Kumar C Krishnamurthy
Head of Research, Auto, Cement Auto, Auto Ancillary, Cement Auto, Auto Ancillary, Cement Construction, Power, Capital Goods Capital Goods Power Construction Power Fertiliser, Natural Gas, Engineering Fertiliser, Natural Gas, Engineering FMCG IT Services IT Services Media Media Metals, Mining Metals, Mining Metals, Mining Pharma Real Estate, Mid caps Real Estate, Mid caps Technical Analyst
vineet.hetamasaria@pinc.co.in nikhil.deshpande@pinc.co.in tasmai.merchant@pinc.co.in vinod.nair@pinc.co.in ankit.b@pinc.co.in hitul.gutka@pinc.co.in subramaniam.yadav@pinc.co.in madhura.joshi@pinc.co.in satish.mishra@pinc.co.in urvashi.biyani@pinc.co.in naveent@pinc.co.in rohit.anand@pinc.co.in ronak.bakshi@pinc.co.in namrata.sharma@pinc.co.in sakshee.chhabra@pinc.co.in bikash.bhalotia@pinc.co.in harleen.babber@pinc.co.in dipti.vijaywargi @pinc.co.in sushant.dalmia@pinc.co.in suman.memani@pinc.co.in abhishek.kumar@pinc.co.in krishnamurthy.c@pinc.co.in
91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618
6388 6339 6377 6379 6551 6410 6371 6395 6488 6334 6384 6372 6411 6412 6633 6387 6389 6393 6462 6479 6398 6747
SALES
Rajeev Gupta Ankur Varman Himanshu Varia Shailesh Kadam Ganesh Gokhale
Equities Equities Equities Derivatives Derivatives
rajeev.gupta@pinc.co.in ankur.varman@pinc.co.in himanshu.varia@pinc.co.in shaileshk@pinc.co.in ganeshg@pinc.co.in
91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618
6486 6380 6342 6349 6347
DEALING
Mehul Desai Naresh Panjnani Amar Margaje Ashok Savla Sajjid Lala Raju Bhavsar Kinjal Mehta Chandani Bhatia Hasmukh D. Prajapati Kamlesh Purohit
Head - Sales Trading Co-Head - Sales Trading
mehul.desai@pinc.co.in naresh.panjnani@pinc.co.in amar.margaje@pinc.co.in ashok.savla@pinc.co.in sajjid.lala@pinc.co.in rajub@pinc.co.in kinjal.mehta@pinc.co.in chandani.bhatia@pinc.co.in hasmukhp@pinc.co.in kamlesh.purohit@pinc.co.in
91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618 91-22-6618
6303 6333 6327 6321 6337 6322 6333 6324 6325 6357
SINGAPORE DESK
Amul Shah amul.shah@sg.pinc.co.in 65-6327 0626
DIRECTORS
Gaurang Gandhi Hemang Gandhi Ketan Gandhi gaurangg@pinc.co.in hemangg@pinc.co.in ketang@pinc.co.in 91-22-6618 6400 91-22-6618 6400 91-22-6618 6400
COMPLIANCE
Rakesh Bhatia Head Compliance rakeshb@pinc.co.in 91-22-6618 6400
Infinity.com
bright thinking
Financial Securities Ltd
SMALL WORLD, INFINITE OPPORTUNITIES
Member : Bombay Stock Exchange & National Stock Exchange of India Ltd. : Sebi Reg No: INB 010989331. Clearing No : 211 1216, Maker Chambers V, Nariman Point, Mumbai - 400 021; Tel.: 91-22-66186633/6400 Fax : 91-22-22049195
Disclaimer: This document has been prepared by the Research Desk of M/s Infinity.com Financial Securities Ltd. (PINC) and is meant for use of the recipient only and is not for public circulation. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors The information contained herein is obtained and collated from sources believed reliable and PINC has not independently verified all the information given in this document. Accordingly, no representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The opinion expressed or estimates made are as per the best judgement as applicable at that point of time and PINC reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval PINC, its affiliates, their directors, employees and their dependant family members may from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through analysis of PINC. The views expressed are those of analyst and the PINC may or may not subscribe to all the views expressed therein This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. Neither this document nor any copy of it may be taken or transmitted into the United State (to U.S.Persons), Canada, or Japan or distributed, directly or indirectly, in the United States or Canada or distributed or redistributed in Japan or to any resident thereof. The distribution of this document in other jurisdictions may be restricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions Neither PINC, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. Copyright in this document vests exclusively with PINC and this document is not to be reported or circulated or copied or made available to others.
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Going through a rough patch...

Ankit Babel +91-22-6618 6551 ankit.b@pinc.co.in

Vinod Nair +91-22-6618 6379 vinod.nair@pinc.co.in

Executive Summary ..................................................................................................

Power BoP EPC segment, the key growth driver ......................................................

Pressure on margins .................................................................................................

Healthy order book ....................................................................................................

Valuation and Recommendation ................................................................................

Tecpro Systems ..................................................................................................

Elecon engineering Ltd. ......................................................................................

Mcnally Bharat & Engineering Ltd. .....................................................................

TRF Ltd. ..............................................................................................................

Power BoP EPC segment, the key growth driver

Cost break-up of coal based power plant

Opportunity for power BoP

Break-up of Power BoP

Coal Handling (27%)

Ash Handling (13%)

Water Treatment and cooling Tower (13%)

Civil Works (27%)

Source: PINC Research

BoP (Rs. 1,510bn)

Coal Handling Plant 18-30 mths

Ash Handling Plant 12-18 mths

Water Treatment & CT 18-30 mths

Source: CEA, PINC Research

Pressure on margins to continue

Operating Profit Margins (%)

Net Profit Margins (%)

Source: Company, PINC Research

Estimated Loss Rs25mn to 60mn/day Rs4.5mn/ day Rs2.5mn/day @14% ROE.

Healthy order book provides visibility

Power 90% Source: Company, PINC Research

Power 77% Source: Company, PINC Research

Material Handling 17%

Valuations and Recommendation

Initiating Coverage Sector: Material Handling BSE Sensex: 18,326

TECPRO SYSTEMS LTD.

BUY CMP Rs300 TP Rs370

Rs15.1bn. Rs136.3 504.7mn. 47.4% Rs3.1mn Rs454/225 TPRO IN TPSL.BO

Source: Company, PINC Research

Total 43,555 50,000 40,000 30,000

Key projects under execution

Operating Profit Margins (%)

Net Profit Margins (%)

Source: Company, PINC Research

Larsen & Toubro Elecon Engg.

Thy ssenKrupp Industries India

Order Inflow (Rs mn)

22160 9730 9930

0 FY07 FY08 FY09 FY10 FY11E FY12E FY13E

Source: Company, PINC Research

Closing Order Book (Rs mn)

Source: Company, PINC Research ankit.b@pinc.co.in 14

Non Cash working Capital as % of sales

Cash Flow Statement

Median PE v/s Daily PE 16X 14X 12X

325 225 125 Oct-10

Company Update Sector: Material Handling BSE Sensex: 18,326

ELECON ENGINEERING LTD.

BUY CMP Rs69 TP Rs96