SUNIL HITECH LIMITED

SUNIL HITECH LIMITED

Sunil Hitech Engg (SHEL) is a well established player in the segments of fabrication, erection, and commissioning of Boilers, Turbo Generator plants, Bunkers, Electrostatic Precipitators, and Balance of Plant (BOP)  in the power plant.

The company which initially began as a contractor has now transformed itself into a Balance of Plants (BOP) player.  It has enhanced its bidding capacity from 100 MW to 250 MW power plants.

Peer companies include BGR Energy, Petron Engg, and Artson Engg.

Order Book for the company stands at 1875 crores as at August 2010, which gives visibility to next 1.5 to 2 years and according to the management, the company has bid for a further orders worth 6000 crores and hence a healthy order pipeline exists.

FINANCIALS:

At cmp of around 182, the market cap of the company stands at around 224 crores.  Net debt as at March 2010 was 210 crores. Book value is around 161.

Equity is 12.28 crores and Promoter holding is around 53%, with no pledging.

Year	08	09	10	Q1 fy 11	FY 11E	FY 12 E
Sales	317	612	722	135	900	1155
NP	21	10	23.46	5.6	39	49
Eps	20	8.4	19.11	4.6	31.7	40.3

Estimates for FY 11E and FY 12E are taken from a report of sharekhan after Q1 FY 11.

REASONS FOR HAMMERING OF STOCK

Results for Q4 FY 10 were affected by a one time provision of around 17 crores for income tax liability.  The company offices were raided by the IT authorities and as per calculations for the last six years assessment, the above provision has been made.  The IT raid and cash recovered from the promoters caused a lot of headlines in the newspapers.  This could be a negative for the purists of investment because integrity and ethics of promoters could be questioned. 

Results for Q1 FY 11 were affected due to delay in execution of projects due to delay in site mobilization and engineering drawing.  Due to this, the management has reduced its guidance for growth for FY 11 from 25% y-o-y to 10%.

POSITIVES:

The company has a healthy order book giving visibility to next 1.5 to 2 years and some more orders in pipeline.

Cheap valuations for the company against EPS estimates of around 31 for FY 11.

The debt equity of the company is within reasonable range of less than 1 as comared to other players.

NEGATIVES:

A big negative is the market perception about the promoters due to the cash recovered during IT raid.

COMPARISION WITH PEERS

COMPANY	SUNIL	BGR ENERGY	PETRON	ARTSON
MARKET CAP	224	6047	312	313
SALES FY10	722	5048	307	215
PBIDT	80	369	51	9.87
NP	20	201	24	1.68
P/E	10.82	30	13
p/bv	1.29	8	3.5

Artson is a turnaround company and hence ratios and comparisions do not mean much.

Looking at the above facts, it seems the stock has corrected out of proportion to the negative news and poor results from a high of around 268 in March 10 to 182 levels currently.

Since India is a power deficient economy, the players operating in this space are going to have healthy order flows for the foreseeable future, and once the company gets its act together, there could be good upsides in this stock.

TECHNICALS:

Since march 2010, the stock has been in a downtrend in the shape of a falling wedge as shown in the chart below. Recently, there has been positive divergence in MACD indicator, where the stock price has formed lower lows whereas the indicator has formed higher lows. A breakout from the falling wedge pattern with good volumes could lead to good upsides in this stock.