Thursday, September 23, 2010

Tecpro Systems Ltd (Tecpro) IPO

Tecpro Systems Ltd (Tecpro) is one of the leading material handling companies in India is entering the capital market with a public issue of 7,550,000 equity shares of Rs 10 each. The issue will comprise a fresh Issue of 6,250,000 equity shares and an offer for sale of 1,300,000 equity shares by the selling shareholder (Metmin Investments Holdings Ltd). The offer comprises a net offer to the public of 7,350,000 equity shares and an employee reservation portion of 200,000 equity shares for subscription by eligible employees. The price band is Rs. 340 to Rs. 355 per equity share of Rs 10 each.

Valuation and recommendation:

We value Tecpro’s stock at Rs. 390, by using the DCF method (WACC of 11.6% and terminal growth of 5%), which offers an upside potential of 15% over the lower end of the price band and 10% over the upper end of the price band. In comparison to its domestic peers’ (TRF Ltd, Elecon Engineering Co, Mcnally Bharat Engineering, and Sunil Hitech Engineering Ltd) average forward P/E of 10.9x for FY11E, Tecpro’s stock proposes a 5% discount with a forward average P/E of 10.4x for FY11E. The Company proposes an ROE of 36.8% for FY11E as compared to average peers’ set of 21.8% and commands a superior EBIDTA and Net profit margin of 14.4% and 7.6%, as compared to average peers’ set EBITDA and Net margin of 9.1% and 4.7%, respectively. Hence, we recommend investors to subscribe to this issue.

The issue opens on September 23, 2010 and closes on September 28, 2010.

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