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Techno Electric: Bridging Power and Data Centers

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The Indian power sector hasn’t stopped captivating our attention and it seems like a perfect example of what we call a sunrise sector which means it is rapidly growing and is expected to be very important in the future.

India’s power demands are at their peak and its future projections look very promising.

Techno Electric: Bridging Power and Data Centers

*Source: TEECL’s Q4 FY24 Investor Presentation.

As of FY24, India’s peak electricity demand stands at approximately 230 GW. This is projected to grow at a ~6% CAGR, reaching around 366 GW by FY32, reflecting an increase of more than half of the current demand in absolute terms.

Currently, India’s total installed capacity stands at 442 GW and the country has set itself an ambitious target of adding 517 GW of capacity by 2032, which is even higher than the total current capacity.

In response to this growing demand, 7,026 ckm of transmission lines and 29,521 MVA of transformation capacity have been commissioned during FY24 (until October 2023). A similar trend was notable in FY23, with the commissioning of 14,625 ckm of transmission lines and 75,902 MVA of transformation capacity.

Techno Electric: Bridging Power and Data Centers*Source: TEECL’s Q4 FY24 Investor Presentation.

The snapshot above provides a glimpse of the projected growth of substations and HVDC (High Voltage Direct Current) systems in India. The total number of substations is expected to increase from approximately 7.2 lakh in FY17 to around 17.8 lakh in FY27, more than doubling over a decade.

Similarly, HVDC systems are projected to grow from 19,500 MW in FY17 to 45,500 MW in FY27, also more than doubling within the same period.

All these factors collectively create a favorable environment for businesses involved in power generation, transmission, distribution, or even allied infrastructure services.

Today, we spotlight another such promising power utility stock: Techno Electric and Engineering Company Ltd (TEECL).

TEECL operates across the entire value chain of the power sector, providing Engineering, Procurement, and Construction (EPC) services across power generation, transmission, and distribution. 

All in all, Techno Electric is among India’s leading Power EPC companies with a good standing in smart meters, flue gas desulphurisation (FGD), and other Power EPC. However, it’s their data center solutions that excite us. We are gonna discuss this in depth later.

Below is a snapshot showcasing its domain of operations:

Techno Electric: Bridging Power and Data Centers

*Source: TEECL’s Q4 FY24 Investor Presentation.

EPC Services

Coming back to its EPC services, the anticipated growth of substations in India, as discussed earlier, has led to a notable increase in the volume of substation work for TEECL since 2023.

Techno Electric: Bridging Power and Data Centers*Source: TEECL’s Q4 FY24 Investor Presentation.

Substation projects are typically larger in scale and involve more complex engineering, which can drive higher revenue growth while maintaining better margins.

Moreover, substations require regular maintenance and upgrades, providing a steady source of revenue for the company.

Additionally, increased participation by private players in power transmission in India has further enhanced the market opportunities for TEECL.

Techno Electric: Bridging Power and Data Centers*Source: TEECL’s Q4 FY24 Investor Presentation.

As evident from the above snippet, private players now constitute more than 50% of the transmission schemes under implementation. With the entry of more private players, the number of projects is likely to increase, allowing TEECL to bid for and secure more EPC projects while also diversifying its customer base. 

Flue Gas Desulphurization

Flue Gas Desulphurization (FGD) plants are used to remove sulphur dioxide (SO2) and other pollutants from flue gas emissions of thermal power plants.

The Government of India has mandated all thermal power plants to limit their sulfur emissions. The total target is to install FGD plants for 211.52 GW, out of which 10.6 GW is already installed and bids for 102.96 GW have been awarded.

Techno Electric: Bridging Power and Data Centers*Source: TEECL’s Q4 FY24 Investor Presentation.

As for TEECL, the company has secured contracts, including a 500 MW project from DVC worth Rs 319 Cr, which has already been commissioned. Additionally, they have an order worth Rs 1455 Cr from Rajasthan Rajya Vidyut Nigam Ltd.

TEECL also has tenders worth Rs 1000 Cr under bidding in the pipeline, indicating a positive future outlook for their FGD segment.

Smart Metering

As India rapidly advances towards electrification, the government has set an ambitious target to increase the number of smart meters from 10 lakhs to 25 crores.

Till now, a total of 22.2 crore smart meters have been sanctioned for installation, with approximately 1.1 crore meters already installed and the remainder in various stages of implementation. 

Techno Electric: Bridging Power and Data Centers

*Source: TEECL’s Q4 FY24 Investor Presentation.

Most of the orders being bid are under the RDSS scheme, accounting for about 88% of the sanctioned meters.

Techno Electric: Bridging Power and Data Centers*Source: TEECL’s Q4 FY24 Investor Presentation.

TEECL has received orders for 30 lakh meters worth Rs 3,500 Cr. In phase 1, it installed 1.27 lakh smart meters in J&K, followed by phase 2, where it installed around 1.12 lakh smart meters in Srinagar and 1.01 lakh smart meters in Jammu. 

Additionally, the company is bidding for various projects involving 40 lakh meters worth Rs 4,500 Cr.

Moreover, TEECL has emerged as the L1 (Lowest Bidder) in Punjab for feeder metering. Unlike consumer meters, feeder meters require high-end metering capabilities for accurate monitoring and management of electricity distribution. 

The project involves installing 1.86 lakh meters with a total order value of Rs 661 Cr, pricing each meter between Rs 35,000 and 37,000.

Winning Big at Orders!

As of FY24, TEECL boasts a substantial order book worth ~Rs 9,200 Cr, which is 6x its FY24 revenue of ~Rs 1,500 Cr. The company secured total order inflows of Rs 7,000 Cr in FY24 alone. 

This impressive order book also is well-diversified across TEECL’s various services.

Techno Electric: Bridging Power and Data Centers*Source: TEECL’s Q4 FY24 Investor Presentation.

Let us now break it down further-

  • Orders worth around Rs 1,300 Cr are for FGD plants.
  • Transmission project orders total about Rs 4,913 Cr, with ~Rs 3,400 Cr coming from EPC orders and the remaining from TBCB (Tariff Based Competitive Bidding) asset orders. The key difference between EPC and TBCB orders is that TEECL receives a fixed sum for completing EPC orders, whereas, under TBCB orders, TEECL earns a fixed tariff based on infrastructure usage.
  • Distribution orders form a total worth ~Rs 2,798 Cr, with a significant portion of ~Rs 2,497 Cr coming from smart meter (DBFOT/TOTEX) orders.

Design, Build, Finance, Operate, and Transfer (DBFOT) orders involve TEECL being responsible for designing, building, financing, operating, and eventually transferring a project back to the client after a specified period. 

Total Expenditure (TOTEX) orders require TEECL to manage both capital expenditure as well as operating expenditure of a project.

  • Finally, TEECL’s data center order book is valued at around Rs 216 Cr.

Impressive Customer Base

TEECL boasts an impressive customer base, featuring multi-year arrangements with marquee Navratna CPSUs, state utilities, and reputed private players of the industry. 

According to its recent investor presentation, the company has played a significant role in constructing 50% of India’s national grid and is actively engaged with over 50% of power-generating projects in various capacities.

Techno Electric: Bridging Power and Data Centers*Source: TEECL’s Q4 FY24 Investor Presentation.

Note: All client names above are according to the current order book.

Data Center Solutions: A Promising Vertical?

As previously mentioned, TEECL’s data center business is particularly exciting. Let’s delve into the opportunities it presents.

India’s internet user base is growing at an unprecedented rate, tripling to 807 million from 277 million in 2015. Its data consumption has also increased by sevenfold between 2018 and 2021.

Another evident data point confirming the growing internet user base is India’s e-commerce market. While India loves its brick-and-mortar stores, it has also embraced online shopping. The e-commerce market has doubled between 2017 and 2022 and is expected to reach a market size of approximately Rs 29 lakh crore by 2030.

One of the major tailwinds for this growth is India having one of the cheapest data charges in the world, at Rs 7/GB (USD 0.09).

To leverage this growing digital market in India, more and more industries are adopting deep technology, increasing the need to store huge volumes of data, and as a result, the Indian cloud market has grown at an impressive ~44% CAGR from 2016-21.

All these factors in consolidation and in addition to other factors like the advent of 5G, increased multi-cloud usage, and data localization is expected to double the data center stock in India by 2025.

Techno Electric: Bridging Power and Data Centers*Source: TEECL’s Q4 FY24 Investor Presentation.

Techno Electric: Bridging Power and Data Centers*Source: TEECL’s Q4 FY24 Investor Presentation.

Now that we know about the promising opportunities in the growing data centers market of India, let us explore where TEECL stands in this scheme of things.

As of Q4 FY24, TEECL’s data center segment contributes orders worth Rs 216 Cr out of the total Rs 9,200 Cr order book. However, this number is expected to rise significantly in the future.

TEECL is currently working on two of its data center projects, the first in Chennai and the other in Kolkata. Additionally, they have also won a concession from RailTel to set up more than 100 edge data centers over the next five years.

Chennai Data Center

TEECL’s upcoming data center in Chennai is proposed to have an IT load capacity of 24MW with a total capital outlay of Rs 1,200 Cr. All civil works have been completed, and MEP (Mechanical, Electrical, and Plumbing) work is currently underway.

Techno Electric: Bridging Power and Data Centers*Source: TEECL’s Q4 FY24 Investor Presentation.

The project is planned to be developed in phases, with each phase having a capacity of 5.6 MW. The company has already spent ~Rs 300 Cr in developing phase 1, with the total cost expected to reach Rs 450 Cr. Phase 1 is expected to be commissioned by September 2024.

The remaining phases are expected to be executed at a lower cost of Rs 300 Cr per phase. The management anticipates that the 24 MW project will be operational by March 2026, 18 months from the commissioning of phase 1.

Techno Electric: Bridging Power and Data Centers

Kolkata Data Center

TEECL plans to set up another data center in Kolkata with an IT load capacity of 15 MW. The company has already acquired a 4-acre plot for this project.

According to the management, the project is currently in the design phase, with the first set of designs expected by October 2024. Construction is slated to begin in January 2025.

The site in Kolkata is strategically located, surrounded by multiple data center companies such as NTT, STT, CTRLs, Digital Reality, and Adani Connex.

Techno Electric: Bridging Power and Data Centers

*Source: TEECL’s Q4 FY24 Investor Presentation.

Joining Hands with Railtel!

TEECL has won a concession from RailTel to set up 102 edge data centers over the next 5 years across prominent railway stations of the Indian Railways.

You might wonder what edge data centers are.

Edge data centers are smaller facilities located closer to the end-user or data source, hence the name as they are positioned at the “edge” (last mile). These centers help in processing data locally, significantly reducing latency.

What’s even more exciting is that the whole network of data centers is planned to be spread across 23 out of 28 states, serving 40% of India’s population at millisecond latency. The project will also leverage the 70,000+ kilometers of fiber owned by RailTel, with the power supply to these centers also taken care of by the railways.

The project has a concession period of 20 years, with the potential for a further extension of 5 years.

Developing Synergy Across the Data Centers

In its recent concall, the management explained how its strategies have shifted after receiving the LOA from RailTel.

The company now plans to retain its Chennai center and develop an ecosystem comprising two large data centers in Chennai and Kolkata, interconnected with the 102 edge data centers spread across the country.

This strategic move would potentially provide TEECL with the broadest network of data centers in India, creating a robust ecosystem that would be difficult for any other player to replicate in the near term.

Techno Electric: Bridging Power and Data Centers*Source: TEECL’s Q4 FY24 Investor Presentation.

Note: The map only displays 58 tier 1 and tier 2 locations out of the total 102 locations.

Financial Overview

Now, let us have a peak into TEECL’s financial performance over the last few years:

Techno Electric: Bridging Power and Data Centers

Its revenues have grown at a solid ~15% CAGR from FY20-24. What truly excites us is its recent surge in growth. Take a look at its FY24 numbers – revenues soared by an impressive ~81%, from Rs 830 Cr in FY23 to Rs 1,502 Cr in FY24.

These figures clearly reflect the escalating demand in the power utility sector after nearly a decade of subdued trends. As Mr. PP Gupta (Chairman & MD) of TEECL remarked in the recent concall, “It is the first bright shine of the sun where the sun is yet to go beyond 8 AM in the day horizon.”

Techno Electric: Bridging Power and Data Centers

As evident from the above chart, TEECL’s EBITDA faced pressure in the previous two years. This weakness was attributed to high commodity prices and increased overseas container freight costs. 

However, with improving demand and changing business mix, its EBITDA margins have improved from 11.2% in FY23 to 13.9% in FY24. The management is confident of maintaining these margins going forward.

In absolute terms, TEECL’s recent EBITDA figures have rebounded to levels similar to those before the margin pressures began.

Techno Electric: Bridging Power and Data Centers

Its PAT has shown significant growth in recent years, with PAT figures since FY21 surpassing its EBITDA figures.

You might wonder how?

TEECL reported exceptional gains from discontinued operations of approximately Rs 91 Cr in FY23 and Rs 21 Cr in FY22, resulting from the divestment of its wind power assets. Additionally, the FY24 PAT includes other income of around Rs 134 Cr.

The divestment of its wind power assets was a strategic move to further strengthen its balance sheet while realigning its portfolio towards future growth opportunities. Talking about a strong balance sheet, keep reading further.

Techno Electric: Bridging Power and Data Centers

TEECL’s Chairman & MD, Mr. PP Gupta, has always maintained a conservative stance toward business operations. Given the challenges faced by the power utility sector in the past, the management has always prioritized maintaining a strong balance sheet.

The company has consistently generated positive cash flows over the years, placing it in a comfortable position for further expansion. Notable from the chart above, only FY24 saw negative free cash flows to the tune of ~Rs 300 Cr, reflecting recent capex activities. Importantly, TEECL also has no debt on its books. 

As of FY24, the company holds cash reserves of around Rs 1,300 Cr and plans to raise Rs 1,250 Cr through a QIP by September 2024 to support its expansion plans.

Current Outlook and Valuation

Here is a glimpse of TEECL’s Q4 FY24 results:

  • Revenues grew by ~40% YoY to Rs 440 Cr.
  • EBITDA saw an elevated YoY growth of ~600% as Q3 FY24 EBITDA numbers were depressed due to the reporting of work done in data centers as well as AMI as costs.
  • On a QoQ basis, EBITDA margins declined from ~17% to ~12%.
  • PAT margins decreased from 19.5% to 17.7% on a YoY basis. However, in absolute terms, PAT showed a YoY growth of ~28% to Rs 78 Cr.

The TEECL management is very optimistic about the future. The company has strategically positioned itself to capitalize on various opportunities across its business segments, with the most significant being transmission capex, followed by FGD, smart metering, and of course the data centers.

As previously discussed, the management has always maintained a conservative approach during tough times, ensuring a strong balance sheet with no debt and consistent positive cash flows.

With approximately Rs 1,300 Cr in cash reserves and a Rs 1,250 Cr QIP on the cards, the company is well-prepared for its next phase of growth.

In the recent Q4 FY24 conference call, the management provided revenue guidance of Rs 2,500 Cr for FY25 and Rs 3,500 Cr for FY26. They also projected EPS of Rs 35 and Rs 50 for the same periods, respectively.

TEECL is currently trading at a market cap of ~Rs 16,000 Cr with a PE ratio of ~60 times at the time of writing. Considering the guidance provided by the management, its FY26E PE comes at ~30 times, which appears reasonably valued given the favorable industry tailwinds.

However, the key question remains if it will be able to successfully capture these opportunities and meet its growth targets.


Disclosure: I, Sidhanth Paul, Research Analyst, author, and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific view(s) in this report.

Research Analyst or his/her relative or Capitalmind Research LLP does not have any financial interest in the subject company. Also, the Research Analyst, his relative,  Capitalmind Research LLP, or its Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further Research Analyst or his relative or Capitalmind Research LLP or its associate does not have any material conflict of interest at the time of publication of this research report.

Also, Techno Electric is a part of our Capitalmind Premium Portfolios. This article is intended solely for informational purposes and should not be considered as an investment recommendation.

Capitalmind Research LLP is a SEBI Registered Research Analyst having registration no. INH000014003.

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