Robust Order Book And Data Centers Will Strengthen Future Prospects In Power Transmission

Key Takeaways

• Strong order book and strategic data center development plans signal significant future revenue growth opportunities.
  
• Focus on high-value power transmission projects and efficient execution enhances margins and responds to infrastructure demand.
  
• Delays, regulatory shifts, and competition may hinder revenue targets and margins, with execution risks affecting projections in key business segments.

Catalysts

Provides engineering, procurement, and construction (EPC) services to the power generation, transmission, and distribution sectors in India.

• The company's robust order book of ₹10,800 crores and potential to secure additional orders worth ₹1,500 crores by the end of the financial year indicate strong future revenue growth prospects.
  
• The completion and revenue generation from the Chennai data center, alongside strategic plans for further data center developments, are expected to significantly increase future revenue streams.
  
• The emphasis on high-end power transmission solutions and specialized services like STATCOM, supported by government infrastructure initiatives, could drive revenue and enhance net margins through higher-value projects.
  
• The company's ability to execute large-scale projects swiftly and efficiently is likely to improve revenue recognition and operational margins, responding to increasing demand in the infrastructure sector.
  
• Participation in smart metering solutions and integration in digitalization projects, despite conservative growth in this segment, demonstrates potential for steady revenue growth and improvement in earnings.

Techno Electric & Engineering Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Techno Electric & Engineering's revenue will grow by 56.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 20.0% today to 12.0% in 3 years time.
• Analysts expect earnings to reach ₹7.3 billion (and earnings per share of ₹57.02) by about January 2028, up from ₹3.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 43.8x on those 2028 earnings, down from 48.3x today. This future PE is greater than the current PE for the IN Construction industry at 36.0x.
• Analysts expect the number of shares outstanding to grow by 3.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.8%, as per the Simply Wall St company report.

Techno Electric & Engineering Future Earnings Per Share Growth

Risks

• Delays in project execution due to land acquisition issues and right-of-way challenges may impact the company's ability to meet revenue targets, especially if such delays persist. This could affect the company's revenue and overall financial performance.
  
• The company's guidance on high revenues for H2 hinges on significant execution jumps with received land parcels, indicating the potential risk of not meeting these heightened expectations, which may subsequently impact earnings.
  
• The slowdown in the FGD business influenced by regulatory changes and potential legislative shifts could impact future order inflows, thereby affecting revenue and margin projections for the company.
  
• High competition in the transmission sector, particularly in tariff bidding, poses a risk to maintaining or improving EBITDA margins amid pricing pressures from aggressive bidding strategies.
  
• The smart meter deployment is fraught with execution risks, including deferred direct debit facilities and potential slowdowns, which could have implications on revenue forecasting from this segment.

Valuation

• The analysts have a consensus price target of ₹1700.33 for Techno Electric & Engineering based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹61.1 billion, earnings will come to ₹7.3 billion, and it would be trading on a PE ratio of 43.8x, assuming you use a discount rate of 13.8%.
  
• Given the current share price of ₹1316.35, the analyst's price target of ₹1700.33 is 22.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.