Company Report | IPO Note

LONG TERM INVESTMENT CALL

24 August 2011
Issue Details Issue Opens Issue Closes Price Band (INR/Share) Face Value (INR/Share) No of Equity Shares (Mn) Size of the Issue (INRGrading IPO mn) Agency IPO Grade BRLMs

SUBSCRIBE

24th Aug 26th Aug 256 261 10 8.9 8.7. 2,270 CARE 4/5 Enam Securities, Antique Capital, Equirus Capital

TD Power (TDP) is a manufacturer of motors and AC generators with capacities ranging from 1 52 MW. The company also executes Turbine Generator island projects for steam turbine power plants with output capacity up to 52 MW. TDP has also ventured into the business of EPC of Boiler-Turbine Generator island projects and the balance of plant portion for steam turbine power plants with output capacity from 52 to 150 MW. Investment Rationale Diversified Product Portfolio: The company has a diverse product range which includes, steam turbine generators, horizontal hydro generators, vertical hydro generators, diesel engine generators, wind turbine generators, gas engine generators, gas turbine generators, high voltage motors and generators for Geo Thermal and Solar thermal applications. TDPs wide product portfolio provides it a strong competitive advantage, thereby allowing it to cater a broad customer base. Technology Ownership, Relationships and In-House Design Expertise: TDP has a well established track record of successfully absorbing new technologies for manufacturing generators and has entered into arrangements with intnal power equipment manufacturers such as Siemens AG and Sicme Motori SrL. In 2007, it granted a limited license to G.E., USA to manufacture generators using its design for Brazilian market. Project Execution Capabilities for Power Project Business: From the inception the company has completed a total of 94 projects with an aggregate output capacity of 1910.50 MW which includes projects executed in India, Uganda, Kenya, Zambia and Philippines. The company has gained significant experience and has established a track record and reputation for efficient project management, execution and timely completion of projects. State-of-the-Art Manufacturing Facilities and Cost Efficient Production: TDPs two manufacturing units are equipped with advanced machines and tools and are ISO 9001:2008 compliant The company has been able to provide competitively priced products through cost efficient production and with the highest quality and technology standards which enables it to receive new business from its existing and new customers. Concerns Significant % of Sales Derived from Sale of Steam Turbine Generators Dependent on Technology Transfer Agreements Outlook & Valuation TDPs business model is well diversified in terms of power equipment manufacturing and EPC, which is an emerging business segment. It is the leader in the captive power segment below 50MW segment and has no direct peer in this space. However, the companys size is very small compared to its peers both in the domestic and the international markets.Post issue, TDPs price band suggests a P/E range of 14.9x 15.2x its FY11 EPS. On P/B front, the stock is priced at 2.0x 2.1x its TTM Book Value per share. We recommend Subscribe on the stock.

2011

Source: RHP, Unicon Research

Shareholding Pattern (%) Group Promoters & Promoter Grp Others

Source: RHP, Unicon Research

Pre IPO 89.45 10.55

Post IPO* 65.93 34.07

Objects of the issue Expansion of Manufacturing Plant Construction of Project Office Debt Repayment Working Capital Others INR Mn 946.4 289.1 302.0 400.0 -

INR Mn

Financial Summary Income EBIDTA PAT

* Source: RHP, Unicon Research

FY10 738.2 71.8 43.5

FY11 864.0 89.4 56.7

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd Email: wealthresearch@unicon.in

Company Background
TD Power is a manufacturer of motors and AC generators with capacities ranging from 1 52 MW. These motors are used in steam turbines, gas turbines, hydro turbines, wind Segment-wise Revenue FY11 turbines and diesel & gas engines. The company has so far manufactured 1,538 generators with a combined output capacity of 12,657 MW, across clients in 34 countries. The company also executes Turbine Generator (TG) island projects for steam turbine power plants with output capacity up to 52 MW. The scope of work of the TG island projects consists of design services, procurement and supply of equipment, assembly, installation & commissioning. The company has so far completed a total of 92 TG island projects with an aggregate output capacity of 1,799 MW which includes projects executed in Uganda, Kenya, Zambia and Philippines. The company has also ventured into the business of Engineering, Procurement and Construction of Boiler-Turbine Generator (BTG) island projects and the balance of plant
Source: Company

(BOP) portion for steam turbine power plants with output capacity from 52 MW up to 150 MW. The company has completed a total of 2 BTG island projects with an aggregate output capacity of 111.50 MW.

Industry Overview
The Indian power sector has undergone a variety of reforms intended to encourage private sector participation since the early 1990s. The Government had launched an ambitious mission of Power for all by 2012 in 2005. This necessitated significant capacity additions, especially towards expanding the regional transmission network and inter-regional capacity to transmit power. Therefore, the Government announced capacity additions of around 78,700MW under the Eleventh Plan. But in view of the progress of the projects, this target has been revised downwards to about 62,000MW in the mid-term appraisal of Eleventh Plan. In the captive power segment, the Government expects about 12,000 MW capacity power plants to be added during the Eleventh Plan period. Besides meeting the demand of the industry, this would also help supply surplus power to the grid. Over the last 5 years, power demand has grown at a CAGR of 7.1% while supply has grown by only 6.6% resulting in the Base Load Deficit widening from 8.4% in 2005-06 to 10.1% in 2009-10. During the same period, movement in Peak Load Deficit has been very uneven, with the deficit rising from 12.3% in 2005-06 to 16.6% in 2007-08, before declining again to 12.7% in 2009-10.

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd Email: wealthresearch@unicon.in

Investment Rationale
Diversified Product Portfolio The company has a diverse product range which includes, steam turbine generators, horizontal hydro generators, vertical hydro generators, diesel engine generators, wind turbine generators, gas engine generators, gas turbine generators, high voltage motors and generators for Geo Thermal and Solar thermal applications. The diversified product offering has allowed the company to develop a broad customer base across a range of industries and has reduced its dependence on any particular industry or market segment. The wide portfolio of products gives it a competitive advantage, as it can cater to all the major verticals of the power generation industry. Technology Ownership, Relationships and In-House Design Expertise The company has a well established track record of successfully absorbing new technologies for manufacturing generators and has entered into arrangements with international power equipment manufacturers such as Siemens AG and Sicme Motori SrL which gives it access to the latest know-how, design and technology to manufacture AC Generators. It also has an in-house product development team comprising 50 technical personnel that works in conjunction with its technical partners to focus on new product development at lower costs, improving quality and design. In 2007, it granted a limited license to G.E., USA to manufacture generators using its design for the Brazilian market. Project Execution Capabilities for Power Project Business From the inception the company has completed a total of 94 projects with an aggregate output capacity of 1910.50 MW which includes projects executed in India, Uganda, Kenya, Zambia and Philippines. The company has gained significant experience and has established a track record and reputation for efficient project management, execution and timely completion of projects in the power generation sector. This has enabled it to satisfy the pre-qualification criteria for bidding for similar and more complex projects. State-of-the-Art Manufacturing Facilities and Cost Efficient Production The company's two manufacturing units are equipped with advanced machines and tools and are ISO 9001:2008 compliant. It has invested in the latest technology to meet the quality expectations of its customers. Further, its IT infrastructure assists in ensuring seamless interaction between various teams and processes within the company. The company has been able to provide competitively priced products through cost efficient production and with the highest quality standards which enables it to receive new business from its existing and new customers

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd Email: wealthresearch@unicon.in

Concerns
Significant % of Sales Derived from Sale of Steam Turbine Generators For the period ended March 31, 2011, the sale of steam turbine generators contributed 76.14% of the restated stand-alone net sales. Any major change in technology could affect the topline of the company. Dependent on Technology Transfer Agreements The company relies upon the provision of technology from certain technology providers with whom it has executed license agreements for its manufacturing business. If any of these agreements are terminated, the company may not be able to manufacture its products

Peer Valuation
Price INR TD Power Systems BHEL Alstom Projects
Source: Ace equity, RHP

Mkt Cap (Mn) 8,630 861,770 35,800

Total Revenue (Mn) 8,746 427,873 18,189

PAT (Mn) 567 60,534 1,692

P/E

P/BV

ROE (%) 30.3 30.0 28.8

261 1,760 534

15.2 14.2 21.2

2.1 4.3 6.1

TDP lacks direct peer in its niche captive power segment (1-52MW). It holds leading market share in this segment, on account of strong technical and management expertise. The company has been able to maintain a negative working capital which has helped it in improving its return ratios.

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd Email: wealthresearch@unicon.in

Outlook & Valuation

TDPs business model is well diversified in terms of power equipment manufacturing and EPC, which is an emerging business segment. It is the leader in the captive power segment below 50MW segment and has no direct peer in this space. However, the companys size is very small compared to its peers both in the domestic and the international markets. Post issue, TDPs price band suggests a P/E range of 14.9x 15.2x its FY11 EPS. On P/B front, the stock is priced at 2.0x 2.1x its TTM Book Value per share. We recommend Subscribe on the stock.

Financials
Particulars (INR Mn) Income Expenditure Operating profit Op. profit margin (%) Other income PBDIT Depreciation PBIT Interest PBT Tax Reported PAT PAT margin (%) Mar-11 8,637.3 7,743.2 894.0 10.4 109.2 1,003.2 80.5 922.7 66.9 855.8 289.3 566.6 6.5 Mar-10 7,382.2 6,664.3 718.0 9.7 71.6 789.6 56.5 733.1 42.3 690.8 255.7 435.1 5.8 YoY (%) 17.0 16.2 24.5 62 bps 52.5 27.1 42.5 25.9 58.2 23.9 13.1 30.2 64 bps Particulars (INR Mn) Net Block Capital Work-in-progress Fixed Assets Investments CA, Loans and Adv. Current Liabilities Loans Net Worth Liabilities and Provisions Share Capital Reserves Capital Reserve on Consolidation Net Worth Mar-11 1,132.0 20.4 1,152.5 0.1 5,540.1 3,963.9 855.7 1,873.1 Mar-10 1,104.0 0.0 1,104.0 3.9 4,816.8 3,880.2 682.2 1,318.4

243.7 1,557.5 71.8 1,873.1

63.4 1,250.7 0.4 1,318.4

Wealth Research, Unicon Financial Intermediaries Pvt. Ltd Email: wealthresearch@unicon.in

Unicon Investment Ranking Methodology

Rating Return Range Buy >= 20% Accumulate 10% to 20% Hold -10% to 10% Reduce -10% to -20% Sell <= -20%

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Wealth Research, Unicon Financial Intermediaries Pvt. Ltd Email: wealthresearch@unicon.in