Strong order book position and government support should lend support to Salasar Techno Engineering Limited

Tangible net worth of Salasar Techno Engineering Limited saw an improvement to INR399.60 crore in FY23 from INR281.10 crore in FY22. Overall, gearing has improved to 0.68x in FY23 in comparison to 0.86x in FY22.
It has adequate liquidity position and it has long-term secured borrowings from banks, to tune of INR49.51 crore as on 31st March 2023.

Salasar Techno Engineering Limited

About the company:

In year 2006, Salasar Techno Engineering Limited started out as a tower manufacturer which has a vision of transforming industry. Not all tower manufacturers provide multiple solutions under 1 roof. Therefore, the company decided to fill this gap by aspiring to become one-stop shop for country’s telecom giants through engineering, designing, procurement, fabrication, galvanization and EPC under 1 roof.

As a result of its persistence, expertise, and ability to work with steel, the company is no longer limited to towers. It has now expanded its range of products and services to encompass all infrastructural needs of developing nation.

Business model of Salasar Techno Engineering Limited

Salasar Techno Engineering Limited has been categorised as one of India’s fastest growing power and telecom EPC companies, which has compounded its revenue ~14.86% in previous 5 years. With niche turnkey engineering capabilities which have been built over past decade, it provides end-to-end power, railway and telecom tower solutions domestically. Now, the company is all set to foray its international aspirations.

As an Indian Infrastructure company, it provides customised steel fabrication and EPC solutions to global market. Products of the company consists of telecommunication towers, power transmission line towers, smart lighting poles, substation structures, solar module, mounting structures, galvanized & non-galvanized steel structures, etc.

The company provides complete engineering procurement and control for projects including Rural Electrification Power Transmission Lines and Solar Power Plants.

Track record of management

Mr. Alok Kumar: He is Chairman & Managing Director of Salasar Techno Engineering Limited and his experience spans across more than 4 decades in trading, manufacturing and fabrication of iron & steel. He is a man with strong principles and progressive ideologies. He started his career with trading in iron & steel and was a Managing Partner in Gupta Traders.

Mr. Shashank Agarwal: Mr. Shashank Agarwal is Joint Managing Director of the company. He has a diverse range of experience which spans more than 25 years and is a true entrepreneur. After building the company from scratch with help of other directors, he supported the company in its IPO in 2017. He has a strong resolve and sharp marketing acumen, and ensures that the company’s stakeholders get returns which they deserve.

Mr. Shalabh Agarwal: He is Whole-time Director of the company and has a professional experience of over 20 years. He is responsible for innovation which takes place at the company - be it technological or procedural.

Financial performance of Salasar Techno Engineering Limited

Salasar Techno Engineering Limited released its business performance for 4Q23 and FY23. In terms of financial performance, revenue from operations came in at INR2,946.96 million in 4Q23 against INR2,122.75 million for 4Q22 and INR10,048.95 million for FY23 in comparison to INR7,188.62 million in FY22. Strong growth stemmed from higher demand for the company’s diversified EPC solutions and efficient execution of order book.

EBITDA of the company was INR298.51 million for 4Q23 against INR160.46 million for 4Q22 and at INR918.12 million in FY23 versus INR689.31 million in FY22, increasing by ~86.04% and ~33.19% respectively. This growth was led by stabilization in steel prices and improvement in capacity utilization. EBITDA margins of the company came in at 10.13% in 4Q23 in comparison to 7.56% in 4Q22 and at 9.14% in FY23 against 9.59% in FY22.

PAT came at INR147.31 million in 4Q23 v/s INR71.34 million in 4Q22 and at INR402.54 million in FY23 in comparison to INR321.83 million in FY22. The company expects that this strong performance should sustain due to healthy order book and increased government spending on railways, roll out of 5G services, higher focus on infrastructure, increasing demand for electricity, and focus on renewable energy.

Furthermore, exceptional product quality and efficient process of the company supported it to become a highly sought-after supplier for numerous clients. The company has expanded its service offerings which needs strong expertise in engineering and construction space. This was well-received by its customers and has allowed the company further differentiate from its competitors. It has supported in incremental revenue growth and order wins.

Industry analysis

Telecom industry in India has been categorised as 2^nd largest in world which has subscriber base of ~1.17 billion as of September 2022 (wireless + wireline subscribers). India has tele-density of ~84.86%, of which, tele-density of rural market, that is mainly untapped, came at ~58.01% while tele-density of urban market is ~134.62%. As per count of mobile towers provided on Department of Telecommunications Dashboard, 4 operators running telecom network used ~7.37 lakh towers and 23.7 lakh base stations as on November 2022. Government of India, as per Union Budget 2023, has earmarked ~INR975.79 billion for Department of Telecommunications. Government intends to establish 100 labs for developing applications utilising 5G services in engineering institutions to realize new opportunities, business models, and employment potential.

In current budget, Indian government earmarked ~INR21.58 billion for optical fibre cable-based network for defence services. Government has earmarked ~INR7.16 billion for telecom projects in north-eastern states.

India’s power transmission market forms a critical component of India’s energy sector, which continues to grow rapidly to address increased electricity demand. India’s transmission system plays critical role in supply of power to customers through an important link between generating stations and distribution system. Expansion potential of transmission sector is principally supported by higher focus on grid reliability and development of new urban and rural power grids coming from urbanization and rural electrification.

Future prospects of Salasar Techno Engineering Limited

India was categorised as a major beacon of growth in 2023, supported by strong domestic demand and expenditure by government. Efforts of Union Budget 2023-24 to improve disposable income of taxpayers in India should accelerate consumption through higher discretionary spending.

Apart from this, strong capital expenditure push which was given by Union Budget, with higher outlay of ~37.4% in comparison to fiscal year 2022-23 should support growth, investments, and job creation. Strong credit growth and stability in financial markets should create an environment which helps investments. Collectively, all these measures are expected to support revenue growth of Salasar Techno Engineering Limited.

Strong domestic demand and favourable government initiatives should help India remain as a fastest growing major economy globally.

Salasar Techno Engineering Limited has a diversified product portfolio and geographical presence which should support the company in tough environment. The company’s products are sold in PAN India and EPC services are provided in states including Delhi, Haryana, Uttar Pradesh, Jharkhand, etc. The company continues to export its products to countries such as Philippines, Africa, Nepal, USA etc. Therefore, all such measures provide revenue diversity to the company in challenging times.

Risks

Any sort of slowdown in Indian economy can potentially impact growth opportunities of Salasar Techno Engineering Limited. Infrastructure investment slowdown can result in lower order intake and reduced sales. At times, the company might face execution challenges including geological surprises, land acquisition, pending approvals and clearances from Government agencies. Apart from this, other factors which can impact include working in difficult weather conditions, manpower issues, etc.

Since telecom tower industry is backbone of communications sector, it faces challenges including restricting installation of towers in residential or nearby residential areas. This is because of distrusts regarding its impacts on health, which sometimes lead to authorities adopting disruptive actions such as halting operational sites, frequent fiber cuts, etc.

Shareholding pattern of Salasar Techno Engineering Limited

Promoters of Salasar Techno Engineering Limited held ~63.07% by end of June 2023 and this percentage holding has remained consistent from past few quarters. It means promoters of the company are optimistic regarding growth opportunities which lie ahead. The company expects that it is in a strong position to capitalise on those opportunities.

FIIs were holding ~9.04% at June 2023 end, which exhibits an increase from ~9.03% in March 2023. This increase means that foreign investors have become more confident in the company’s growth opportunities. Public shareholders were holding ~27.87% of Salasar Techno Engineering Limited.

Valuation and investment rationale

Stock of Salasar Techno Engineering Limited continues to trade at ~38.5x of FY23 EPS, which is at a discount to sectoral average of ~43.34x. This hints that investors should consider going long on this stock as significant upside is expected in upcoming quarters.

Growth in stock price is expected to stem from its established track record of operations, well-diversified portfolio of products, reputed clientele having low counterparty risk, and healthy order book position. In tower, heavy steel structures and EPC business, the company continues to deal with government and private clients such as Indian Railways, Delhi Metro Rail Corporation, Power Grid Corporation of India Limited, RITES Limited, Larsen & Turbo, etc., which carries very less credit default risk. Majority of orders pertaining to EPC segment are supported by government-funded programmes, which gives payment assurance.

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