TD Power is aggressively priced when the market is in the dumps. Will the pricing safeguard investors’ interest? While the listing-gains of Enam lead-managed issues exude optimism, the track record of TD Power’s main promoter may trip the investors’ aspirations.
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OFFER AT A GLANCE |
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Name |
TD Power Systems Ltd |
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Offer Quantity |
87 to 89 lakh equity shares of Rs 10 each |
|
% on Total Equity |
26.7% or 26.3% |
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Offer Price |
Rs 256 to Rs 261 |
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Offer Amount |
Rs 227 cr |
|
Bid Quantity |
25 & Multiples of 25 |
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Bid/Offer Opens |
August 24, 2011 |
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Bid/Offer Closes |
August 26, 2011 |
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Rated By |
CARE |
|
Rating |
4 out of 5 |
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Lead Managers |
Enam Securities, Antique Capital, Equirus Capital |
|
Registrars |
Link Intime India |
Issue
TD Power Systems (TPS) is making a fresh Issue of Rs 227 cr with a price band of Rs 256 – Rs 261 for a 10 paid-up share, the issue quantum being 87 to 89 lakh shares.
Parentage
The Bangalore-based TPS has three promoters. The largest chunk is controlled by Ahmedabad-based Chartered Accountant, Mohib Khericha (Chairman of TPS). Hitoshi Matsuo (Managing Director) who is a Japanese national and the Bangalore-based Nikhil Kumar (Joint Managing Director) are the other two promoters.
Hitoshi is an ex-employee of Toyo Denki (TD), a technical collaborator of TPS. Nikhil Kumar, who owns Bangalore Beers & Wines, was earlier working with Kirloskar Electric Company in-charge of their Bangalore factory.
The promoter-chairman of TPS, Mohib Khericha, is not new to investors. He floated public Chartered Capital and Investment Ltd during the height of 1995 primary market boom. This company offered shares @ Rs 20 including premium of Rs 10. Khericha is also on the board of another listed company namely Chartered Logistics Ltd (CLL) which went public a year later than Chartered Capital. Interestingly, though CLL is not considered as a group company, it uses the same logo as Chartered Capital.
Business
TPS has three divisions. The manufacturing division produces generators for turbines (steam/Gas/hydro/wind), diesel and gas engines with output capacity 1 MW to 52 MW. The company focuses on custom-designed generators.
The project division executes `turbine generator island projects’ for steam turbine power plants. The company reportedly combines its own generators with turbines sourced from Japan.
The third division undertakes Engineering Procurement & Construction (EPC) for power plants with capacity from 52 MW to 150 MW. While the first two divisions are directly under the control of the company, the third division is operated as a wholly-owned subsidiary.
Issue Objects
TPC has planned to spend Rs 103 cr on the expansion of its manufacturing facility, Rs 29 cr on constructing a project office in Bangalore city, Rs 33 cr is ear-marked for repayment of debts and Rs 40 cr is meant for working capital.
Prospects
The expansion project is scheduled to be commissioned by December 2011 while the city office is slated to be completed by December 2013. The company already has a backlog of orders worth Rs 1,095 cr and its consolidated average return on net worth for the last three years was as impressive as 33%. Hence unless there is a marked slowdown in the economic growth, the company can expect a reasonable growth in the coming years.
Valuation
TPS compares reasonably with its peer group. Its operating margin is better than Alstom and BGR Energy though it is lower than the diversified power equipment conglomerate BHEL. In price-earnings, TPS’ present offer is cheaper than MNC Alstom. However, as compared to its south compatriot BGR Energy, TPS looks costly.
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How TD Power compares with peers |
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Company Name |
Alstom |
BHEL |
BGR Energy |
TD Power |
|
|
Share Price (Rs) |
521.85 |
1,716.00 |
316.40 |
256.00 |
261.00 |
|
M-Cap in Cr (22/08/11) |
3,498 |
84,002 |
2,283 |
851 |
863 |
|
Equity Capital (Rs Cr) |
67.02 |
489.52 |
72.16 |
33.24 |
33.07 |
|
Operating Margin% |
12.3 |
21.1 |
11.8 |
15.6 |
15.6 |
|
Return on NW % |
24.8 |
30.2 |
33.1 |
23.5 |
23.5 |
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Dividend Yield % |
1.9 |
1.0 |
3.2 |
0.8 |
0.8 |
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Price/Earnings (x) |
24.3 |
13.8 |
7.3 |
14.0 |
14.3 |
|
Price/Book Value (x) |
6.0 |
4.2 |
2.4 |
3.5 |
3.6 |
|
Price/Revenue (x) |
2.0 |
2.0 |
0.5 |
1.7 |
1.7 |
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Price/EBITDA (x) |
13.2 |
8.5 |
4.2 |
11.0 |
11.2 |
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Price/Net Block (x) |
8.0 |
21.3 |
15.3 |
7.5 |
7.6 |
Concerns
- Over dependant on single product (76% from steam turbine generator)
- Limited number of customers
- Possible economic slow down affecting upcoming power projects
- Extremely low cost of holding of promoters (less than Rs 2 to Rs 28 per share)
- Stagnant top line growth in last five years
- Descending Return on Net Worth (38.9% in Fiscal 2009 to 23.5% in Fiscal 2011)
- Unimpressive track record of main promoter who is in public domain for more than one and a half decade
Enam-managed IPOs
TPS IPO is managed by three investment bankers two of them, Antique Capital and Equirus Capital, are relatively new. Enam does have an envious record of bringing out IPOs that offer instant listing gains. Nevertheless, Enam-managed IPOs have proved to be no better than others for long term investors.
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PERFORMANCE OF ENAM-ASSOCIATED IPOS IN LAST TWO YEARS |
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Sl. No. |
Issuer
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IPO Date |
FV
|
IPO Price |
Listing Gain% |
3-Mon Gain% |
6-Mon Gain% |
1-Yr Gain% |
Current Gain% |
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|
1 |
Adani Power |
28-Jul-09 |
10 |
100 |
5.0 |
-7.0 |
6.7 |
39.8 |
-15.6 |
|
|
2 |
NHPC |
7-Aug-09 |
10 |
36 |
8.3 |
-12.9 |
-11.3 |
-15.4 |
-34.9 |
|
|
3 |
Pipavav Defence |
16-Sep-09 |
10 |
58 |
3.5 |
-4.1 |
47.7 |
43.3 |
7.1 |
|
|
4 |
D.B.Corp |
11-Dec-09 |
10 |
212 |
17.9 |
21.9 |
10.3 |
23.7 |
11.7 |
|
|
5 |
Vascon Engineers |
27-Jan-10 |
10 |
165 |
3.0 |
-10.9 |
3.0 |
-38.2 |
-71.6 |
|
|
6 |
United Bank |
23-Feb-10 |
10 |
66 |
16.7 |
19.8 |
77.5 |
54.6 |
15.2 |
|
|
7 |
IL&FS Transport |
11-Mar-10 |
10 |
258 |
11.2 |
11.1 |
23.4 |
-8.1 |
-30.2 |
|
|
8 |
Persistent System |
17-Mar-10 |
10 |
310 |
29.0 |
51.4 |
43.6 |
31.1 |
-3.8 |
|
|
9 |
Nitesh Estates |
23-Apr-10 |
10 |
54 |
-7.4 |
-24.7 |
-25.7 |
-48.7 |
-62.9 |
|
|
10 |
Jaypee Infra |
29-Apr-10 |
10 |
102 |
-8.8 |
-18.9 |
-21.4 |
-48.3 |
-60.3 |
|
|
11 |
Indosolar |
13-Sep-10 |
10 |
29 |
2.6 |
-18.6 |
-41.4 |
|
-71.0 |
|
|
12 |
Eros International |
17-Sep-10 |
10 |
175 |
21.9 |
-10.5 |
-14.2 |
|
12.6 |
|
|
13 |
Electrosteel Steel |
21-Sep-10 |
10 |
11 |
12.3 |
-11.2 |
-12.5 |
|
-32.5 |
|
|
14 |
Ramky Imfra |
21-Sep-10 |
10 |
450 |
0.0 |
-31.4 |
-37.2 |
|
-49.5 |
|
|
15 |
Va Tech Wabag |
22-Sep-10 |
2 |
524 |
26.3 |
14.7 |
-4.2 |
|
-23.0 |
|
|
16 |
Ashoka Buildcon |
24-Sep-10 |
10 |
324 |
2.9 |
-12.0 |
-12.3 |
|
-19.8 |
|
|
17 |
Oberoi Realty |
6-Oct-10 |
10 |
260 |
7.7 |
-5.2 |
-3.3 |
|
-16.7 |
|
|
18 |
Prestige Estates |
12-Oct-10 |
10 |
183 |
3.8 |
-17.4 |
-14.3 |
|
-43.9 |
|
|
19 |
Coal India |
18-Oct-10 |
10 |
245 |
17.4 |
25.7 |
51.4 |
|
61.3 |
|
|
20 |
Claris Lifesciences |
24-Nov-10 |
10 |
228 |
-1.6 |
-27.1 |
-29.3 |
|
-47.3 |
|
|
21 |
A2Z Maintenance |
8-Dec-10 |
10 |
400 |
-2.5 |
-35.3 |
-40.3 |
|
-56.2 |
|
|
22 |
Punjab & Sind Bank |
13-Dec-10 |
10 |
120 |
21.8 |
-10.5 |
-16.7 |
|
-35.9 |
|
|
23 |
Future Ventures |
25-Apr-11 |
10 |
10 |
-5.0 |
-8.4 |
|
|
-11.0 |
|
|
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Total Gainers |
|
|
|
18 |
6 |
8 |
|
5 |
|
N.B.: Price adjusted to post-issue stock-splits
Conclusion
Though TPS compares reasonably well with its peers, the track record of the promoters’ maiden public venture may advice one to tread cautious. Having tapped the market during the 1995 unprecedented primary market boom at 100% premium, Chartered Capital threw its dividend promises of 20% in very first year and 60% in fourth year into the wind. BSE records show that the company has not paid any dividend for the past thirteen years!