Techno E&E Co. BUY INITIATING COVERAGE TEEC IN EQUITY July 07, 2016 Wind in the sails Engineering & Construction TEEC’s unmatched working capital management, lean cost structure and Recommendation bidding discipline make it a strong bet on rising T&D spends. Mcap (bn): `34/US$0.5 Government funding support (IPDS, DDUGJY), increased state/PGCIL 6M ADV (mn): `11/US$0.2 spending and reforms (UDAY, TBCB) will drive investments. TEEC’s CMP: `600 execution competence was evident in the previous high-growth cycle (FY04-09) wherein its revenue increased 8x, margins expanded and TP (12 mths): `745 working capital was negative for most period. We expect a similar strong Upside (%): 24 performance over FY16-18E – EPC revenue/EPS CAGR of 26%/29% and reduction in working capital to 36 days. We value EPC business at 20x Flags FY18E EPS; strong management, high RoIC and growth visibility support Accounting: AMBER premium multiples. Exit from the wind power segment will boost RoCE, Predictability: AMBER release management bandwidth and increase ability to invest in Earnings Momentum: GREEN relatively low RoCE but highly stable transmission assets. Competitive position: MODERATE Changes to this position: STABLE Catalysts Amongst the best contractors…  Sustenance of execution and order TEEC’s industry-par RoEs for over 20 years despite lower leverage/margins come inflow pace in FY17 from low working capital (5-yr average of 37 days vs 66-182 for peers). Control  Monetisation of the wind assets at par over fixed costs (3% CAGR in last 5 years) implies overheads are 9% of revenue to our embedded valuation of `5.2bn (18%+ for peers). Sensible bidding and tech savvy (STATCOM, HVDC) help it compete in high-margin, low-competition segments. These reflect a strong, sustainable EPC franchise, but capital allocation was less than perfect. Performance (%) …in an industry geared for growth 120 We prefer transmission contractors due to subdued competitive intensity, lower 110 land/RoW issues and strong government intent. Under-investment in T&D (33% 100 of power spends over FY08-14 vs 50% ideal) seem to be reversing now. 90 Government push to resolve sector problems by funding (IPDS, DDUGJY: `1tn) 80 and reforms (UDAY, Electricity Act amendments, TBCB) combined with higher 5 5 5 5 5 6 6 6 6 1 1 1 1 1 1 1 1 1 s2t2a tves s`p1e.n2dtns i(nu pF Y3103%- 1in7 )F wY1ill6 d froivr e9 o lradregre instfalotews )g aronwd tPhG foCrI Lth sep esencdtso r(`. 1.4tn FY18- Jun- Aug- Sep- Nov- Dec- Jan- Mar- May- Jun- SENSEX TEEC Capital allocation improving Poor capital allocation is primarily investments in wind power generation, sub- Source: Bloomberg, Ambit Capital Research par dividend payout and inter-corporate loans given in FY09. About 79% of capital employed is currently invested in wind business with a pre-tax RoCE of 3%, lower than 117% for the EPC business. Sale of the wind asse ts should result in improved RoCE but risks another bout of capital misallocation. Punchy valuations will sustain TEEC’s industry leading operations, strong management and capital misallocation are akin to Thermax; it merits a premium to peers like Thermax does. EPC business value of `620 implies 20x FY18E profits, 30% higher than KECI. Strong growth and better capital allocation will sustain valuation; investments in transmission assets will impart stability to otherwise volatile business. Key risks: capital misallocation; state spending throttling off K ey financials Research Analysts FY15 FY16 FY17E FY18E FY19E Utsav Mehta, CFA R evenue 7.9 11.0 14.6 17.7 21.8 Growth (YoY) 12% 38% 33% 21% 23% +91 22 3043 3209 EBITDA margin 26.2% 20.2% 23.7% 22.0% 20.8% [email protected] EPS 18 21 37 44 55 Nitin Bhasin RoE 12% 13% 19% 20% 21% P/E (ex-embedded value) 41 26 21 16 12 +91 22 3043 3241 EV/EBITDA 18.6 16.9 10.6 8.6 6.8 [email protected] S ource: Company, Ambit Capital research Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit Capital may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision. Techno E&E Co. Snapshot of Company Financials Profit and Loss Company Background Year to Mar (` mn) FY16 FY17E FY18E Event Year Net revenue 10,972 14,620 17,712 EBITDA 2,213 3,467 3,893 Started operations as an EPC player 1963 Depreciation 495 578 596 Public listing 1980 Interest expense 1,650 2,488 3,009 Adjusted PBT 487 431 572 Forayed into captive power plant segment 1985 Tax 1,226 2,123 2,509 Adjusted net profit 1,407 2,123 2,509 Forayed into the power T&D segment 1990 Reported net profit 21 37 44 Investment by Citigroup Venture Capital 2006 Profit and Loss Ratios EBITDA Margin (%) 20% 24% 22% Forayed into the wind power generation space 2009 through 95MW acquisition Net profit margin (%) 11% 15% 14% P/E (ex-embedded value) 25.9 20.9 15.6 Forayed into Transmission BOOT projects 2010 EV/ EBITDA 16.9 10.6 8.6 Sold 45MW of wind power capacity 2015 P/B 3.4 2.9 2.5 Balance Sheet Cash flow Year to Mar (` mn) FY16 FY17E FY18E Year to Mar (` mn) FY16 FY17E FY18E Total Assets 14,936 17,371 18,632 PBT 1,894 2,488 3,009 Fixed Assets 8,046 9,415 8,958 Depreciation 495 578 596 Current Assets 8,744 10,192 13,309 Direct taxes paid (487) (431) (572) Investments 1,547 1,547 1,547 Change in working capital (895) 347 370 Total Liabilities 14,936 17,371 18,632 CFO 1,075 3,382 3,692 Total networth 10,145 11,769 13,544 Purchase of fixed assets 1,511 (1,947) (139) Total debt 4,784 5,594 5,080 Investments in subs - - - Current liabilities 3,600 3,982 5,381 CFI 1,689 (1,843) 300 Deferred tax liability 8 8 8 Proceeds from borrowings (866) 811 (514) Balance Sheet ratios Change in share capital - - - RoCE 9% 15% 15% Interest paid (443) (504) (478) RoE 13% 19% 20% Dividends paid (230) (356) (433) Gross Debt/Equity (x) 0.5 0.5 0.4 CFF (1,539) (50) (1,425) Net debt (cash)/ Eq (x) 0.3 0.2 (0.1) Change in cash 1,225 1,490 2,567 Working Capital turns (x) 3.4 4.2 5.7 Free cash flow 2,586 1,435 3,553 Profitability can increase even further if wind assets are Since this business consumes more capital than the core EPC sold business 22% Profitability Capital employed (consolidated; `13.2bn) 20% Corporate EPC 10% 11% 18% 16% 14% 12% 10% Wind FY14 FY15 FY16 FY17E FY18E 79% Consolidated Standalone Source: Bloomberg, Ambit Capital research July 07, 2016 Ambit Capital Pvt. Ltd. Page 2 Techno E&E Co. A brief introduction to Techno E&E Contrary to popular perception of a niche-substation contractor, TEEC is a cross- functional contractor that operates across segments in the power space. It has construction capabilities in power generation, transmission and distribution. Building substations and switchyards is its primary revenue generator. The consolidated business has three businesses – contracting, wind power generation assets, and transmission BOOT assets. Exhibit 1: An overview of Techno Electric Revenue EBITDA % of FY16 EBITDAM Segment Sub-segment Details (` mn; (` mn; revenue (FY16) FY16) FY16) Standalone  Building captive power plants up to 100MW on a turnkey basis  Parts of the BOP contracts such as fuel oil handling system, EPC business Power Generation 600 5% NA comprehensive electrical systems, piping, power evacuation systems and others  Serves both Government/PSU and private customers  Building sub-stations and switchyards. The company is not present in the transmission lines segment Transmission 8,543 78% NA  Services largely PGCIL and multi-laterally funded state projects  Rural electricification and distribution management systems Distribution under Central Government programmes 1,000 9% NA  Primarily works with state distribution companies Total EPC 10,143 92% 1,440 14.2%  The standalone business has 45MW of wind power generation capacity spread across 2 states - Karnataka - Wind power Power Generation (12MW) and Tamil Nadu (33MW); 30 turbines of 1.5MW 186 2% 144 77.4% generation  This was acquired from Suzlon's promoters for `2.5bn in FY10 Total SA 10,328 94% 1,583 15.3% Subsidiaries  Transmission project won in FY14 and commissioned in Patran Transmission Jun-16 - 0% - NA Transmission asset  Located in Punjab, the total project cost is `2bn with a concession period of 35 years  Acquired in FY10 with a capacity of 50.4MW, the entity added an additional 111.9MW. IFC invested `225mn for a 3.38% stake in FY12 Simran Wind Power Generation  The entity sold 44.45MW of capacity in FY16 for `2.15bn to 644 6% 620 96.3% an unnamed buyer  Now has 117.9MW of capacity of which 6MW is in Karnataka and rest in Tamil Nadu Total Consol 10,972 100% 2,203 20.1% Associates  Transmission project won in FY11 and commissioned in Mar-12  Located in Haryana the total project cost was `4.3bn with a Transmission concession period of 35 years with the option to end it at Jhajjar KT Transco asset 25 years.  If ended at 25 years, the company would receive five years of revenue upfront  TEEC has a 49% stake Source: Company, Ambit Capital research, Media sources; Note: Distribution and power generation revenues are Ambit estimates July 07, 2016 Ambit Capital Pvt. Ltd. Page 3 Techno E&E Co. Tracing the origins Techno Electric (TEEC) was established in 1963. The current promoter (PP Gupta) acquired the company in the early 1980s. Through the late 1990s and 2000s the company operated as a contractor in the power space across various segments in generation, transmission and distribution. Key takeaways from studying the history of the company are:  TEEC has shown strong control over working capital (negative in 9 of the 15 years over FY96-10) that enabled the company to maintain industry-average RoE despite sub-par margins (due to its smaller scale) and lower leverage.  TEEC is cross-functional contractor that operates across the power space and not just a niche player in substation EPC as widely perceived.  During the previous cycle of high investments in T&D, the company benefited from not only high growth but also higher margins and negative working capital.  Investing in wind power assets was a mistake, which the company is now looking to reverse. Exhibit 2: TEEC’s industry-par profitability is despite its smaller scale, margins and lower leverage Revenue vs RoE 70 50% 60 40% 30% 50 20% 40 10% 30 0% 20 -10% 10 -20% 0 -30% FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 KECI (Rs bn) TEEC (Rs bn) KPTL (Rs bn) KECI RoE (RHS) TEEC RoE (RHS) KPTL RoE (RHS) Source: Company, Ambit Capital research; Note: Standalone figures used for all three entities to compare domestic T&D EPC businesses FY98-FY03: Small-sized contractor that excelled in managing its balance sheet TEEC’s scale largely remained the same during this period (revenue base of `400mn- Revenue CAGR: 9% 750mn). Due to the limited scale of operations, margins were in low-single digits. Median RoE: 12% The company’s substation business increased from ~60% of revenue to ~80%. A Largest segment: substations/ large proportion of orders, even during this phase, were from Government or public switchyards (77% of revenue) sector units such as Power Grid (PGCIL), NTPC, BHEL, NEEPCO and APTRANSCO. Focus was to become a preferred contractor across segments of the power space, including generation. These were substations, fuel oil handling plants and electrical systems. It also forayed into portions of Balance of Plants (BoP) projects through a subcontracting order. July 07, 2016 Ambit Capital Pvt. Ltd. Page 4 Techno E&E Co. Exhibit 3: TEEC’s growth was patchy and margins were in Exhibit 4: Substation was the main source of revenue; single digits though it did not make a loss however, it had a footprint in generation as well ` mn FY98 FY99 FY00 FY01 FY02 FY03 60% Revenue growth vs margins 6% Fuel oil handling plant 50 114 39 48 22 10 5% 40% % of total 12% 18% 6% 8% 3% 2% 4% 20% Electrical systems 68 45 48 19 19 21 3% % of total 17% 7% 7% 3% 3% 4% 0% 2% Sub-stn/ switchyard 247 370 550 490 662 444 -20% 1% % of total 60% 60% 81% 80% 88% 85% -40% 0% Others 40 87 40 54 52 47 FY97 FY98 FY99 FY00 FY01 FY02 FY03 % of total 10% 14% 6% 9% 7% 9% Revenue growth EBITDA mgn (RHS) PAT mgn (RHS) Total revenue 408 617 678 611 755 521 Source: Company, Ambit Capital research Source: Company, Ambit Capital research Despite the smaller scale of operations and therefore lower margins, TEEC’s profitability was comparable to peers such as Kalpataru. This was primarily driven by low working capital investments vis-à-vis peers and no manufacturing facilities. Leverage was minimal with a preference towards equity (two fund-raises through rights issues). Exhibit 5: TEEC vs transmission peers – asset-light model supports profitability Standalone FY98 FY99 FY00 FY01 FY02 FY03 Capital employed turnover TEEC 4.4 4.6 3.7 3.3 4.1 2.5 KECI 1.0 1.3 1.0 0.5 0.5 0.8 KPTL 1.3 1.4 1.3 1.2 0.9 1.4 PAT margin TEEC 2% 3% 5% 3% 3% 3% KECI 4% 2% 1% -9% -13% -1% KPTL 7% 9% 9% 5% 5% 3% Leverage TEEC 1.4 1.3 1.3 1.2 1.1 1.1 KECI 2.3 2.6 2.8 3.2 3.9 3.9 KPTL 2.2 2.3 2.0 1.8 1.9 2.3 RoE TEEC 10% 17% 21% 13% 12% 9% KECI 8% 8% 3% -15% -26% -4% KPTL 19% 30% 24% 11% 9% 11% Source: Company, Ambit Capital research; Note: Standalone figures used for all three entities to compare T&D EPC businesses July 07, 2016 Ambit Capital Pvt. Ltd. Page 5 Techno E&E Co. FY04-FY10: Industry growth boosts revenue The Electricity Act of 2003 was an inflection point for companies in the T&D space, Revenue CAGR: 44% including generation companies. The quantum of investments in transmission and Median RoE: 34% distribution multiplied, boosted by new regulations and schemes (Accelerated Power Largest segment: Substations/ Development and Reforms Programme and Rural Electrification Scheme). Bifurcation switchyards (41% of revenue) of the debt saddled state electricity bodies into separate, functional units aided further investments, especially in distribution. As shown in the exhibit below, peers also grew at a fast pace in this period. Exhibit 6: KECI’s warranted optimism in the FY05 annual report The Accelerated Power Development and Reforms Programme ("APDRP") has been put in place by the Government and projects worth over `.170 billion have already been approved under this scheme. The Government has also announced plans to add around 107,000 MW of additional power generation capacity by the year 2012 and evolved a transmission plan for strengthening regional grids as well as creating a national grid, which can support this target. An investment of about `. 71,000 crores (`710bn) is envisaged in power transmission under central sector and Transmission and Distribution of electricity generated is being accorded a high national priority in view of the significant capacity additions. The Government has launched Rajiv Gandhi Grameen Vidyutikaran Yojana ("RGGVY"), a Rural Electrification Scheme involving an expenditure of `. 16,000 crores Source: Company TEEC forayed into captive power plant and distribution segments during this phase. Its scale in distribution expanded significantly – by FY07, 58% of revenue came from the power distribution contracting segment driven primarily by projects in Andhra Pradesh and Bihar. Captive power/BOP projects were sporadic, resulting in small surges in revenue; substation reduced to 27% of revenue. Exhibit 7: Govt impetus on the sector yielded strong Exhibit 8: Revenue was broad-based with substations, growth for TEEC; margins also expanded substantially distribution contributing the most ` mn FY04 FY05 FY06 FY07 FY08 FY09 FY10 Techno's 140% 14% Oil handling plant 33 23 145 204 490 466 1,208 revenue growth vs margins 120% 12% % of total 5% 2% 6% 6% 11% 10% 18% Electrical sys 70 94 355 357 118 116 228 100% 10% % of total 11% 8% 14% 10% 3% 2% 3% 80% 8% Sub-stn/ switchyard 506 553 355 839 2,575 3,151 1,797 60% 6% % of total 79% 48% 14% 24% 60% 65% 27% 40% 4% Power distribution - 52 1,017 2,052 988 789 1,463 % of total 0% 4% 41% 58% 23% 16% 22% 20% 2% BOP/ Power Gen 3 241 432 33 - 194 1,154 0% 0% % of total 1% 21% 17% 1% 0% 4% 17% FY04 FY05 FY06 FY07 FY08 FY09 Others 31 189 203 41 124 144 468 Revenue growth EBITDA mgn (RHS) % of total 5% 16% 8% 1% 3% 3% 7% PAT mgn (RHS) Total revenue 643 1,152 2,506 3,526 4,296 4,860 6,680 Source: Company, Ambit Capital research Source: Company, Ambit Capital research Profitability also increased. Driven by strong top-line growth, EBITDA margins expanded to 11.2% in FY09. The company continued to exhibit strong control over working capital as indicated by high capital employed turnover vis-à-vis peers. Remarkably, due to high working capital turns, the company did not require external capital to fund growth. It raised equity in FY07 and FY08. Cash largely remained on the company’s books unutilised until the company invested in wind assets. July 07, 2016 Ambit Capital Pvt. Ltd. Page 6 Techno E&E Co. Exhibit 9: TEEC’s capital employed turnover and superior margins led to better profitability in this high growth phase Standalone FY04 FY05 FY06 FY07 FY08 FY09 FY10 Capital employed turnover TEEC 2.8 4.6 7.9 4.6 3.0 2.2 1.7 KECI 1.0 1.5 2.6 3.3 3.1 3.0 2.8 KPTL 1.7 2.5 2.6 2.2 1.7 1.4 1.7 PAT margin TEEC 4% 4% 5% 8% 11% 13% 17% KECI 6% 3% 3% 5% 6% 3% 4% KPTL 4% 5% 8% 10% 9% 5% 6% Leverage TEEC 1.1 1.0 1.0 1.0 1.0 1.1 1.4 KECI 3.5 2.9 2.6 2.7 2.3 2.2 2.1 KPTL 2.4 2.1 2.3 1.7 1.5 1.6 1.7 RoE TEEC 14% 21% 40% 37% 34% 32% 38% KECI 19% 15% 19% 46% 45% 22% 26% KPTL 16% 28% 47% 39% 21% 12% 19% Source: Company, Ambit Capital research FY10-FY15: Expansion into non-contracting businesses drags profitability; industry growth slows In FY09-10, the company decided to venture into the power generation business by Revenue CAGR: 6% acquiring assets from Suzlon’s promoters. Moreover, it also decided to invest in Median RoE: 16% transmission BOOT projects, which are typically steady-return but asset-heavy projects. Hence, the company’s return ratios declined significantly driven by declining capital employed turnover. Moreover, increasing competition in the transmission space and the company’s conservative, profit-focused nature resulted in limited revenue growth at the standalone level. Exhibit 10: The company’s growth was subdued as it chose Exhibit 11: Wind and transmission asset investments to prioritise margins weighed down the balance sheet Revenue growth vs margins Application of funds 50% 25% (FY15: `8.6bn) 40% 30% 20% Working Net block 22% 20% 15% cap 25% 10% 0% 10% Cash/ invstmnts -10% 5% 5% -20% Invstmnts -30% 0% in FY10 FY11 FY12 FY13 FY14 FY15 subs/asso 48% Revenue growth EBITDA mgn (RHS) PAT mgn (RHS) Source: Company, Ambit Capital research Source: Company, Ambit Capital research July 07, 2016 Ambit Capital Pvt. Ltd. Page 7 Techno E&E Co. Exhibit 12: TEEC’s profitability declined significantly as capital employed turnover declined on the back of non-contracting business investments Standalone FY10 FY11 FY12 FY13 FY14 FY15 Capital employed turnover TEEC 1.7 1.1 1.0 0.7 0.8 0.8 KECI 2.8 2.3 2.6 2.9 2.8 2.5 KPTL 1.7 1.6 1.4 1.4 1.6 1.5 PAT margin TEEC 17% 15% 13% 11% 12% 12% KECI 4% 4% 4% 0% 2% 2% KPTL 6% 7% 5% 4% 4% 4% Leverage TEEC 1.4 1.5 1.4 1.4 1.3 1.3 KECI 2.1 2.1 1.9 2.0 2.3 2.5 KPTL 1.7 1.4 1.3 1.3 1.4 1.4 RoE TEEC 38% 24% 19% 11% 12% 13% KECI 26% 19% 20% 0% 10% 10% KPTL 19% 15% 10% 8% 8% 8% Source: Company, Ambit Capital research July 07, 2016 Ambit Capital Pvt. Ltd. Page 8 Techno E&E Co. Discipline and adaptability: The secret sauce TEEC’s main competitive advantages are discipline and adaptability. Its strong growth over the last 20 years with limited balance sheet risk (excluding the power generation aspirations) and consistent profitability (no net loss in any of the last 20 years) indicate high bidding discipline. Its seemingly opportunistic foray into allied contracting segments (distribution, captive power) and asset ownership of transmission and generation assets indicates flexibility. The architecture of the organisation is geared towards limited risk-taking and tight control over operations and is complemented by management’s extensive experience in the space. Architecture – based on cost and WC management TEEC typically never has more than 20 open sites and is unlikely to undertake more TEEC typically never has more than than one distribution contract. This enables strong managerial and supervisory twenty open sites and is unlikely to control over the execution pace, working capital management and cost control. undertake more than one Moreover, the company tends to take projects in hard-to-operate regions like Bihar to distribution contract. protect its margins. The company’s exemplary track record in terms of working capital and margins demonstrates this. The company has not reported a net loss in any of the last 20 years. However, as the company increases in scale, it will need to increase its managerial bandwidth. TEEC has been in the T&D contracting business since 1980. It has strong relationships with multiple Government and public sector units through decades of operating with them. As shown in the exhibit below, most of the company’s projects are primarily with PSUs like NTPC and Power Grid. The MD, PP Gupta, has a strong reputation amongst peers. Exhibit 13: TEEC has worked with most companies Exhibit 14: PP Gupta’s background Awarder Contracts won  Bachelor in Engineering and a Post Graduate in Business PCGIL 28 Management from IIM, Ahmedabad BHEL 23  Took over TEEC in early 1980s Other state Electricity boards 22 AP Electricity boards 12  Associated with the Planning Commission as a Financial NTPC 11 Analyst and Management Consultant, deputed to BHEL Bihar Electricity boards 9  Advisor in the Merchant Banking Division of the erstwhile DVC 8 ANZ Grindlays Bank, Kolkata State OMCs 5  Was the Vice President of Indian Electricals and Electronics NEEPCO 2 Manufacturers Association (IEEMA) Alstom 2 Others 30  More than 30 years of experience in the current field Source: Company, Ambit Capital research Source: Company, Ambit Capital research Adaptability – agility in tapping new segments TEEC has operated across the generation, transmission and distribution segments. Although transmission has always been the main driver of revenue, the company has been opportunistic enough to leverage on distribution and captive power plant demand whenever it arose. Due to limited number of active sites (20 at most), it is agile enough to target newer segments. July 07, 2016 Ambit Capital Pvt. Ltd. Page 9 Techno E&E Co. Exhibit 15: TEEC’s changing revenue mix suggests an opportunistic (and capable) approach to high-growth segments Revenue mix 120% 140% (% contribution to revenue) 120% 100% 19% 20% 12% 15% 21% 18% 17% 19% 100% 21% 80% 39% 39% 40% 48% 45% 80% 23% 16% 46% 60% 60% 4% 58% 45% 40% 40% 81% 80% 88% 85% 79% 22% 20% 61% 60% 60% 41% 60% 65% 0% 48% 20% 24% 27% 29% -20% 14% 0% -40% FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Transmission Distribution Generation/ Others Revenue growth (RHS) Source: Company, Ambit Capital research; Note: data for revenue breakup not available in Annual reports post FY11 The same is also witnessed within the substation EPC category. The company has always focused on identifying upcoming trends within its core area of expertise. It’s relatively early foray into high KV segments, STATCOM and HVDC meant it was amongst the few Indian contractors vying for market share in this category. Working capital management – best in class TEEC’s working capital management stands out as amongst the best in the industry. As shown in the exhibit below, the company’s working capital cycle is the shortest amongst T&D peers despite steady deterioration over the last 5 years. TEEC is partially aided by lower inventory days since it doesn’t own any manufacturing operations (all 3 T&D peers own tower manufacturing plants). Even adjusted for this, TEEC’s cycle is shorter due to lower receivable days which may be a function of the project mix. Its working capital is better than or on par-with most road contractors, if we exclude advances the road companies received from self-owned road assets. Note that we have excluded loans and advances from this calculation since these contain advances made to subsidiary companies. Exhibit 16: TEEC’s working capital advantages are driven by its asset-light model (no manufacturing) and better receivables management FY16 5 year average Days Inventory Recb Oth. asset Payables Oth. liab Cycle Inventory Recb Oth. asset Payables Oth. liab Cycle Techno Electric 13 161 0 97 8 70 5 135 0 65 39 37 T&D Peers KECI 18 212 42 144 43 84 20 185 54 151 42 66 KPTL 35 159 52 124 21 101 44 147 59 121 28 101 Jyoti Structures 34 614 66 66 NA NA 38 302 17 130 45 182 Alstom T&D 103 253 26 166 132 83 74 212 47 177 91 65 ABB 42 152 18 94 57 61 44 153 18 95 66 55 Road Contr. Ashoka 152 80 41 67 102 104 111 58 27 116 84 (4) Sadbhav 16 119 10 42 55 48 20 123 5 51 62 35 KNR 14 52 65 45 109 (22) 15 57 65 43 99 (5) Source: Company, Ambit Capital research; Note: Standalone figures used for all entities to narrow down on domestic contracting business metrics; for peers in the T&D business, international and non-T&D businesses may exist. We have excluded loans and advances to remove volatility caused by loans given to subsidiaries; 4-year average till FY15 used for Jyoti Structures due to lack of data July 07, 2016 Ambit Capital Pvt. Ltd. Page 10