sunil hitech

Sunil Hitech (BSE code 532711), an engineering company recently came out with an IPO. Currently the market capitalization of the company is 132 crores at the current market price of 131.75.

Whole-Time Director at Sunil Hitech Engineers, Sunil Gutte in an interview to Moneycontrol said that profit for FY07 will be around Rs 8-Rs 9 crore and the net sales would be around Rs 200 crore. NTPC, a customer of Sunil Hitech has plans to add 5000 mega watt in this particular financial year. In the 10th and 11th five year plan they have proposed 1,00,000 mega watt additions. NTPC, BHEL and all major electricity boards have been customers and Sunil Hitech has been working with them for over ten years. So they expect to get good orders.

The company's unexecuted order-book, as on November 31, 2005 was Rs 178 crore, this was two-and-a-half times its 2005 revenues. Therafter it has been getting further contracts. It has been awarded contract by Bharat Heavy Electricals Ltd (BHEL) recently for Erection, testing, assistance for Commissioning. Trial operation and handling over the Boiler and Auxiliary including ESP, Rotating machines, Ducts and Dampers, Power Cycle piping etc. of 2 x 250 MW Unit - 1 of Bhilai Power at District Durg, Chattisgarh. The Value of the contract is Rs 13 crores and is to be executed over a period of 18 months. Apart from this it has been awarded a contract by Maharashtra State Power Generation Company Ltd (MSPGCL) for New Parli project - 1 x 250 MW Main Storm Water Drainage, Arrangement for TPS Area at New Parli Power Project, Parli Vajinath, Dist Beed, Maharashtra. The Value of the contract is Rs 3 crores and is to be executed over a period of 6 months.
Most of the orders are scheduled for completion by FY-06 and FY-07. Given its track record of completing projects before time , a jump in revenues of FY-06 and FY-07 can be expected. Sunil Hitech is now targeting the EPC (Engineering, Procurement and Construction) business in the captive power plant segment (5 MW to 60 MW). Over the last couple of years, Sunil Hitech has also taken up contracts of higher value. Slowly it seems to be moving up in terms of order size. A track record of timely or early execution of contracts is also a big help when bidding for contracts. Operating margins at 8-9 per cent are somewhat higher than other companies in the same industry. Sunil Hitech owns the equipment used in operations. This means it will have better control over costs and profit margins when it chooses to scale up operations.

Sunil Hitech is into erection and fabrication of power plants. It has participated in the civil work for power plants up to 500 MW. Its client list is impressive comprising of NTPC, BHEL, Reliance Energy and Skoda Export. Many orders received during last year are from BHEL which itself has an order book bursting at the seams. The funds raised in the IPO are being used to finance its working-capital requirements, capex plans and repayment of high-cost debt. For a company as small as Sunil Hitech, growing in an industry like Infrastructure is going to be a cakewalk as long as the promoters mean business. The company post IPO has 34.66 % public shareholding. It has chosen to have a major promoter shareholding, a very positive sign.For the half year ended Sept 30, 2005 it had a bank balance of 4.74 crores. This shows that it has no cash flow troubles. In the same period it had sales of 58.78 crores.
For the year 2006-2007 it is projecting sales of 200 crores. This is a growth rate of 70-75 % in sales. Net profit will be 8-9 crores as per Sunil Gutte, director. On an equity of 10 crores, this gives an EPS of 8-9. At the current market price of 132, this is discounted 15 times going forward. For a company growing at this pace, in an industry where opportunities abound, the valuation is very cheap.
We expect a re rating in this stock. There will be many triggers for the stock price over the next few months with repeated orders expected. A price of Rs.250 over the next one year is likely