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Monday, September 27, 2010

Subscribe to Techpro Systems at Upper Price Band of 355

The initial public offer of Tecpro Systems, a material handling company, has opened for subscription.

The company is offering 75.5 lakh shares through this issue and a price band is at Rs 340-355 a share. The issue will close for subscription on September 27 for QIB bidders and on September 28 for non-QIB bidders. Bids can be made for a minimum of 15 equity shares and in multiples of 15 shares thereafter.

Techpro System with its strong presence in bulk handling material is one of the major beneficiaries of strong investment in the core sector of power, steel, port etc. Pertinently, the power sector alone is expected to add 40000 MW by FY12, which will turn out to be an emerging opportunity of more than Rs 17000 crore. Techpro System continues to enjoy highest EBIDTA margin in Industry (15%) & PAT Margin (7.5%).

Techpro Limited top-line has grown at a CAGR of 70% from FY06-FY10; while operating profits and PAT have grown at a CAGR of 89.7% and 85.8% from FY06-FY10 respectively. Company’s profitability has grown more than its top-line exhibiting strong operating performance and maintaining healthy balance between debt -to- equity helps the company in delivering superior returns on equity. In terms of margin company’s operating margin and net profit margin stood at 15.4% and 7.4% way above industry peer average of 11.9% and 4.2% during FY10 respectively.

In terms of Return on equity company reported a average RoE of 35% (FY08-FY10) as compared to peer average of 23% (FY08-FY10). On the higher price band of Rs 355 the stock is trading at 16.5x FY10 diluted EPS of Rs 21.5 while peer average is 17.3x FY10 basis.

Given the strong performance and superior return ratios company should trade at a premium to its peers, hence we recommend investor to subscribe to the stock at higher end of price band of Rs 340-355.

Issue is expected to get overwhelming response from retail, non institutional investors as well as QIBs and can be easily oversubscribed by more than 20 times. Investors can easily expect listing gain of 15% to 20% from Tecpro Systems.