RESULT UPDATE ON TANTIA CONSTRUCTION LTD: HUGE TURNAROUND

As anticipated by us, TCL has achieved HUGE TURNAROUND in its operations for Q1. TCL has reported negligible loss of 11 lacs as against Loss of 24.58 crores in corresponding quarter of previous year. Thus there is TURNAROUND OF 24.70 Crores. Finance cost for the quarter have plunged from 23.47 crores to 11.71 crores. It is a major positive for  TCL. Normally H2 is peak for infra companies. Due huge broadbased selling in equity markets, share price of TCL has come down from our recommended level. Now, it provides great opportunity to add more in big quantity.

We are confident that TCL should post reasonably good PAT for current year and sharp jump in PAT for FY17. If markets do not crash and remain stable, TCL should be quoting in 3 digits in 2016. 

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Recommendation before Results:

Order Book Rs 3600 Crores, Mcap Rs 50 Crores: TANTIA CONSTRUCTIONS LTD (CMP Rs 27)

Rationale for Recommendation:

1. Amongst the oldest Construction/Infrastructure co of W Bengal, making profits until FY14.

2. Book Value Rs 103 as against Cmp Rs 27.

3. Order Book around Rs 3600 Crores and Mcap only Rs 49-50 Crores.

4. All time high share price Rs 250.

5. After incurring losses in FY15, co will again reports profits for FY16.

6. A good case of bottom-fishing which may provide multiple-fold appreciation over next 6-24 months

BACKGROUND: 

TCL is engaged in host of infrastructure and construction activities which include construction, widening, conversion, maintenance, strengthening & beautification fo roadways, road bridges, highways and flyovers. 

TCL also provides infrastructure services, including surveys, fixing of alignment & designing of track embankment, steel girder fabrication and erection, construction of bridges, tunnels, buildings, railway station terminals and MRTS infrastructure. 

TCL also engages in building tunnels, jetties, steel girders along rivers,  beam foundation, lattice structure erection, cable laying operations and control systems at airports.

Some of recently completed projects include:

a) 37 km long RCC NP3 Sewer pipeline for KEIP Kolkata worth 116 crores.

b) 1.8 km long tunnel for Udhampur Rail Link worth Rs 100 crores.

c)Sewerage & drainage for borough XV KEIP Kolkata worth Rs 106 crores.

PAST PERFORMANCE:

               

From the above, it is clear that TCL had been consistently profitable. In FY11, TCL had achieved PAT of 27.25 crores which translated into Eps of Rs 16.63. However, subsequently, decline in profits started as TCL bagged some big projects and as its order book was swelling, company borrowed heavily which increased its interest burden but topline almost stagnated due high gestation period projects and increased debtors due to delayed payments from clients.

YEAR 2014-15:

FY15 proved worst in TCL's history as its topline declined to 518 crores and TCL made big loss of 54.47 crores. Due to delay in recovery of dues from its clients, execution of projects got hampered/delayed which led to reduced sales resulting in big loss for the year. However, Q1 and Q3 were particularly bad which accounted for 90% of losses of FY15. TCL had provided 21.47 crores for depreciation which means CASH LOSS was lower at 33 crores.

FUTURE OUTLOOK:

TCL has order book of Rs 3600 crores which gives revenue visibility for next 3-4 years . Worst is behind and company is on recovery path as evident from the fact that its losses for Q4 were 7.43 crores as against losses of 29 crores in Q3. Decline in steel prices should help TCL to report profitable nos in current year. 

TCL is trading at:

1)  0.26xFY15 Book Value

2. Stock is available at 5.64xFY16E Eps

3. TCL is trading at 3.63xFY17E Eps

4. Finally and most important, Mcap of TCL is 0.14xOrder Book i.e. MARKET CAP IS ONLY 14% OF TOTAL     ORDER BOOK

Overall, investment in infrastructure in India is likely to improve which has led to huge valuations for profitable infrastructure companies. In such a scenario, TCL with Book Value of Rs 103 appears a good case of bottom fishing. Current market price offers good risk-to-reward ratio as downside form current levels is limited/low but if TCL can achieve guidelines, share price can be in 3 digits in 2016. In infrastructure business, sometimes there is  quarterly lumpiness of revenues or wide variatIons at net level ( e.g. one quarter may witness losses due to completion of some old low margin contract whereas next quarter can see sharp jump in profits) Hence, investors with patience (6 months to 24 months) can buy TCL.