Shriram EPC
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Showing posts with label Shriram EPC. Show all posts
Showing posts with label Shriram EPC. Show all posts
Sunday, December 20, 2009
Saturday, November 28, 2009
Wednesday, November 11, 2009
Friday, March 28, 2008
Monday, February 18, 2008
Friday, February 01, 2008
Shriram EPC IPO Allotment - Subscription Details
| Sr.No. | Category | No. of times of total meant for the category | ||
| 1 | Qualified Institutional Buyers (QIBs) | 6.1322 | ||
| 1(a) | Foreign Institutional Investors (FIIs) | |||
| 1(b) | Domestic Financial Institutions(Banks/ Financial Institutions(FIs)/ Insurance Companies) | |||
| 1(c) | Mutual Funds | |||
| 1(d) | Others | |||
| 2 | Non Institutional Investors | 0.4108 | ||
| 2(a) | Corporates | |||
| 2(b) | Individuals (Other than RIIs) | |||
| 2(c) | Others | |||
| 3 | Retail Individual Investors (RIIs) | 0.6291 | ||
| 3(a) | Cut Off | |||
| 3(b) | Price Bids |
Thursday, January 31, 2008
Shriram EPC IPO Analysis and Recommendation
Investors with a high-risk appetite and a two-three year investment horizon can consider investing in the initial public offering of Shriram EPC (SEPC). However, we would be more comfortable if the offer is priced at the lower end of the price band.
Given the company’s wide-spread exposure to businesses such as renewable energy, process & metallurgy and municipal services, SEPC appears well set to leverage on the strong demand for both its product as well as service offerings.
Valuation
Foray into higher-capacity wind turbine generators, bio-ethanol plants and increasing bias towards execution of turnkey projects also suggest strong prospects.
However, the offer is expensively priced. In the price band of Rs 290-330 the offer is priced at about 22-25 times the likely FY09 per share earnings.
This is backed by SEPC’s presence across high-growth business verticals and its robust order book (about Rs 2,270 crore).
Business verticals
SEPC’s business can be broadly classified under two categories — Engineering, procurement and construction (EPC) projects and manufacture/sale/maintenance of wind turbine generators (WTG). The company’s EPC business focuses on three segments — renewable energy, process & metallurgy and municipal services.
The renewable energy EPC projects mainly consist of biomass-based power projects, co-generation power projects and bio-ethanol plant projects. In the process and metallurgy EPC projects, SEPC focuses on providing turnkey solutions to sectors such as power, steel and cement. The company typically bids for these projects in consortium with foreign players who provide the technology back up, while SEPC provides for manpower, onsite construction, commissioning and testing services.
It also provides cooling tower and air-pollution control systems through Hamom Shriram, its joint venture company with Hamom group.
Through its municipal services division, SEPC undertakes turnkey projects for water and waste management and executes pipe rehabilitation projects.
The WTG division, apart from manufacturing 250KW-class WTGs, also does installation, commissioning and maintenance of turbine generators. SEPC has formed two joint ventures with Netherlands-based Leitwind to establish presence in high-end WTGs (1.35 MW WTGs). These joint ventures, using Leitner’s gearless WTG technology will manufacture and subsequently market and sell these WTGs .
This business may hold potential given the growing demand for windmills and the supply constraints for gearboxes. However, weighed against this, Leitwind’s technology is not yet established . SEPC’s limited exposure to export market may also pose challenges.
SEPC plans to use the proceeds from this issue for investing in its associate companies, such as Orient Green Power and Leitner Shriram Manufacturing.
Growth drivers
SEPC’s foray into providing EPC services for process and metallurgy, given its positioning as a complete engineering solutions provider may help it gain traction in this market.
These projects, which typically enjoy high margins, may also help SEPC better its operation metrics.
Besides, the company’s focus towards executing EPC projects in other sectors may also help it diversify and scale up revenues. While so far it had primarily executed EPC projects in the captive power and metallurgy segments, a recent order win worth Rs 570 crore from the cement sector points to broader revenue streams.
The company’s unique exposure to various sources of renewable energy also presents significant potential for revenue growth over the long-term. While it is an established player in biomass-based EPC projects, its foray into bio-ethanol is relatively new.
Cracking the bio-ethanol market may take sometime since these projects require a sound technology base and features established overseas players. SEPC may have to partner with global players for sourcing technology.
While finding the right partner may take time, SEPC’s partnerships with leading global players in its other business divisions infuse some confidence on this front.
The company’s recent order to build a 280 KLPD (kilo litres per day) bio-ethanol plant in Czech Republic in consortium with a leading European player is a case in point.
Further, SEPC’s move towards ownership of power generation assets through its associate company, Orient Green Power may also have potential for significant earnings upside over the long-term.
Among other initiatives of SEPC, wastewater management and pipe rehabilitation while insignificant currently, hold good potential.
SEPC’s revenue has grown at an annual compounded rate of about 99 per cent over the last two years, albeit on a small base. Earnings, during the same period, grew by about 51 per cent. Profit growth may accelerate significantly if SEPC’s entry to high-growth and high-margin segments pays off.
Concerns
While SEPC is attempting to offer a one-stop shop for engineering solutions across segments, it has to tackle competition from established players such as L&T, Praj Industries and Thermax in each of those areas.
This may force SEPC to competitively price its service offerings and may squeeze its margins to an extent. Further, the company’s relatively smaller scale of operations may render it unfit to bid for many of the high-value turnkey projects, unless it stikes successful global partnerships.
Moreover, since the company sub-contracts most of the peripheral material requirements for such projects, it may not have complete control over project costs.
This may put to test SEPC’s ability to effectively manage its cash flows given its high working capital requirements. Overall, execution risks to this offer are high.
The offer closes on February 1.
Wednesday, January 30, 2008
Grey Market - Emaar MGF, Reliance Power, KNR Constructions
Future Capital Holding 765 360 to 380
Reliance Power 450 160 to 170
Emaar MGF 610 to 690 110 to 120
J. Kumar Infraprojects 110 to 120 3 to 5
Cords Cable Ind 125 to 135 10 to 12
KNR Construction 170 to 180 Discount
On Mobile Global 425 to 450 40 to 50
Bang Overseas 200 to 207 32 to 35
Shriram EPC 290 to 330 20 to 22
IRB Infrastructure Developers 185 to 220 50 to 55
Shriram EPC IPO Analysis
Shriram EPC is one of the leading providers of integrated design, engineering, procurement, construction and project management services for renewable energy projects, process plant, metallurgical plants and municipal services sector projects. Besides engineering, procurement and construction (EPC), it also manufactures and installs 250-KW wind turbine generator (WTG) and cooling towers.
The renewable energy business comprises EPC execution of biomass power plant, co-generation power plant projects and bio-ethanol plants. Bio-ethanol technology is sourced from a leading European player with project-specific arrangement. Similarly, EPC solutions for process and metallurgy plants including captive and non-captive thermal power plants are also undertaken. In the process and metallurgy space, bids are placed as part of larger project-specific consortium with international players such as Danielli of Italy for rolling-mill contracts, SSIT of China for coal-dust injection, Waterbury of Canada for stainless-steel mill for an integrated steel plant, Beltran of the US for wet electrostatic precipitators, and Envirotherm GmbH of Germany for coal gasification. In the water and wastewater space, EPC solution is given for treatment plants, water and sewerage infrastructure and pipe rehabilitation.
The WTG business is focused on developing, manufacturing, erecting and commissioning 250-KW WTGs. Currently, megawatt class WTGs are being developed through a subsidiary and associate company, which have formed a joint venture (JV) with Leitwind of the Netherlands. End December 2007, over 210 WTGs were supplied and installed and four wind farm projects developed for clients in India, particularly in Tamil Nadu. The first export order to supply 250-KW WTG to a client in Thailand in fiscal 2007 was executed recently. To move up to MW class of WTGs, one 1.35-MW WTG was installed in Tamilnadu in September 2007 and another is to be installed in Karnataka by February 2008.
The process and metallurgy business accounted for 62.7% of the EPC contract revenue and 39.1% of total consolidated revenue in the year ended March 2007(FY 2007). The biomass power-plant business generated about 26.8% of the EPC contract revenue and 16.7% of consolidated revenue. The municipal services business accounted for 106% of the EPC contract revenue and 6.6% of consolidated revenue. The WTG business generated 35.9% of consolidated revenue.
Shriram EPC has three associate companies manufacturing WTGs, renewable power generation, and metallurgical coke. Orient Green Power (OGPL) is the associate company in which Shriram EPC holds a 48.7% stake, focuses on developing renewable energy source based (biomass and hydel) power plants on build-own-operate (BOO) and build-own-operate-transfer (BOOT). To date, OGPL has identified four biomass power projects in Dindugal, Pattukottai, Vandavasi and Pollachi in Tamilnadu of 1x7.5 MW each, aggregating 30 MW ; one mini hydel power project (of 15 MW) in Orissa; and one poultry-based power project (of 6 MW) in Andhra Pradesh for development. The licence for these six projects to be executed are already in place with third parties. OGPL is expected to acquire a majority / entire stake in each of the special purpose vehicle (SPV). OGPL has also bid for licences for two biomass power plants in Punjab and one in Madhya Pradesh, with a capacity of 10 MW each. Ennore Coke is the listed company and the second associate. Leitner Shriram Manufacturing is the other associate company, where Shriram EPC owns 49%, with the balance 51% held by the Netherlands-based JV partner, Leitwing BV, manufacturing 1.35-MW class WTG machines. This JV is expected to commence operation from January 2008.
Hamon Shriram Cottrell (formerly Hamon Thermopack Engineers) and Shriram Leitwind are the two subsidiaries of Shriram EPC. While Hamon Shriram Cottrell manufactures and erects cooling towers and air pollution control units, Shriram Leitwind (Shriram EPC owns 51%) markets WTG of both 25 KW class and 1.35 MW class. Shriram EPC also plans to shift the manufacturing and marketing of the KW machine business to the newly formed JV companies. Shriram EPC acquired majority stake ( 50% + 2 shares) in erstwhile Hamon Thermopack Engineers from Hamon Group and also got exclusive licence to design, manufacture and sell certain air pollution products and systems from the stable of Hamon Research Cottrell Inc.
The issue proceeds will be used to capitalise the subsidiaries and associate companies to purchase of equipment for pipe-rehabilitation projects and fund expenditure for general corporate purpose.
Strengths
Presence in potentially strong growth sectors such as renewable energy including bio-ethanol plants, metallurgical EPC contracts and water and waste water infra projects. This sector presents strong potential with increasing capital expenditure. Operating in complementary projects such as cooling towers and air pollution control equipment, and coal gasification solutions will help to maximise the business share from both existing and future clients.
Consolidated order book stood at Rs 2279.18 crore end December 2007, translating into about 7.7 times FY 2007 revenue. The order book is also diverse by project mix with the share of process and metallurgical-plant projects including cooling towers and pollution control equipment about 57%, municipal services 9.2%, and biomass-power plant 9.3%. The WTG business accounted for about 7.7% of the total order book. Has also bagged a Euro 69-million contract to design and build a 280-kilo litre per day (KLPD) bio-ethanol plant in Czech Republic.
Successful project execution capability in time-bound and cost-effective manner backed by an able management team. Has executed large and complex projects on time or before the scheduled completion date. As lump-sum turnkey projects do not come with a price-escalation clause, timely completion and cost effectiveness is a big determinant of profitability.
Weakness
Though has a strong presence in 250 KW class, has entered into the MW class with a relatively new player as technology partner. Furthermore, the gearless technology of Leitwind is new, without a track record. This and competition in the global wind-power equipment market calls for strong marketing muscle, which is yet to be seen.
A single order (the EPC contract for setting up of a 1.5-tonne per day grassroot cement plant for Sree Jayajothi Cements in Andhra Pradesh) constituted about 25% of the total order book end December 2007. About 10 projects represented 72.6% of the order book end December 2007. Any delay or holdback of the project will affect the revenue flow.
GEI Industrial Systems has filed a petition before the Company Law Board against Compagnie Financiere Hamon and other praying for restraining Hamon/ or any subsidiary or group company from entering into any new JV and cancellation/ termination of existing JV. In the event of adverse decision against Hamon, the JV Hamon Shriram will be asked to terminate.
Has little experience in the successful execution of bio-ethanol plant. Its ability to scale up in this market by competing against established players is to be seen. Similarly, has also won order for the execution of a cement plant and a coal-gasification plant, where it lacks experience.
Valuations
Consolidated revenue in the fiscal ended March 2007 was higher by 105% to Rs 295.72 crore and the restated net profit up 117% to Rs 14.06 crore. The EPS for FY 2007 works out to Rs 3.3 on post-IPO equity. At the offer price band of Rs 290-Rs 330, the P/E works to 87.9-100 times the FY 2007 consolidated earning. However, the P/E based on consolidated half-yearly EPS (annualised) works out to 59.2 (on the lower price band of Rs 290) times to 67.4 times (on the upper price band of Rs 330). Given the diverse operational profile, there is no comparable player of its size. Nevertheless, peer players such as Thermax, BGR Energy, Praj and Suzlon Energy are quoting at a P/E of 42.3, 175.8, 38.1 and 58.7 times their FY 2007 consolidated earning
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