AC generators manufactured by the company are attached with the prime movers such as steam turbines, gas turbines, hydro turbines, wind turbines, diesel and gas engines, to generate power. While AC generator range for steam turbine is upto 52 MW, its upto 15 MW for horizontal hydro turbines and upto 25 MW for vertical hydro turbines and 1MW for wind turbines. It manufacturers customised generators for Gas turbines. In case of diesel engines its offering is upto 15 MW.

In addition to manufacturing AC generators the company also executes turbine generator (TG) island projects for steam turbine power plants with output capacity up to 52 MW. The scope of the TG Island Project work consists of design services, procurement and supply of equipment, assembly, installation & commissioning. The company uses Japanese turbine combined with its generator.

The company, through its subsidiary, i.e., DF Power Systems, undertakes engineering, procurement and construction (EPC) contracts for executing boiler-turbine generator (BTG) island projects and the balance of plant (BOP) portion for steam turbine power plants with output capacity from 52 MW up to 150 MW. Under EPC contract, excluding civil works, the company's scope of work includes design services, procurement and supply of equipments, assembly and installation & commissioning.

The company has forayed into manufacture of generators in August 2001 under a license from Toyo Denki Seizo KK of Japan. Now the company owns that technology and has further developed in-house capability to manufacture generators up to 40 MW.

For higher capacities and diverse applications the company has tied up with leading international power equipment manufacturers such as Siemens AG (for steam/gas turbines generators in 20-50MW) and Sicme Motori SrL (for wind turbine generators of 1MW), Toshiba Misubishi Electric (for high voltage motors up to 10 MW). In addition it has entered into a product development cooperation and manufacturing agreement dated May 12, 2009 with Voith Hydro Holding GmbH & Co.KG (Voith Hydro) for jointly developing electric generators. Under the agreement, the parties are to jointly develop and design electric generators. The company will manufacture such generators for the Voith Hydro Group. The company has granted license to GE, USA to manufacture generators for the Brazilian market, and on co-manufacturing basis for other countries in Central & South America.

Since its inception through June 30, 2011, the company has manufactured a total of 1,538 generators (of which 233 generators supplied overseas to 34 countries) with an aggregate output capacity of 12,657 MW and has completed a total of 92 TG island projects both in Indian and overseas such as Uganda, Kenya and Philippines, with an aggregate output capacity of 1,799 MW. Similarly, the EPC subsidiary has completed a total of 2 BTG island projects with an aggregate output capacity of 111.50 MW since its inception to till June 30, 2011.

The company's business operation can be divided in three business segments, i.e., manufacturing business, project business and EPC business. The manufacturing business comprise of manufacture and sale of AC generators and motors. But this does not include the AC generators manufactured in India but sold to Japan branch of the company, which is accounted as part of project business. On the other hand the project business include design and execution of TG island projects and the EPC business EPC of BTG island and BOP. In FY 2011, the revenue mix in terms of the manufacturing business, project business and EPC business was 37%, 19% and 44%, respectively. While the manufacturing business is high EBITDA margin business with a margin of 19-20%, the project and EPC businesses are relatively low margin businesses with their EBITDA margin in the range of 5-6%.

TDPS currently has an installed manufacturing capacity of 360 generators per annum across two manufacturing units in the Dabaspet industrial area on the outskirts of Bangalore. Both the units are equipped with advanced machinery and are ISO 9001:2008-complaint.

The company has two overseas branches one at Japan and another at Hong Kong. The Japan branch office sources turbines for the company's project business and sells generators manufactured by the company in India. The Hong Kong branch, set up by its subsidiary, sources power plant equipment for the company's EPC business as also source and sell power plant equipment to third parties. 

The consolidated order book is Rs 1094.69 crore as end of June 30, 2011. Of the total order book, the manufacturing business order book is Rs 380.66 crore comprising AC generator order of Rs 379.56 crore with balance being motor. The order book of project business is Rs 183.14 crore and that of EPC business was Rs 530.89 crore. Average execution period is 180-240 days for manufacturing order book and 14-16 months for projects business and 20-24 months for the EPC business.

The company proposes to utilize the net proceeds of the Issue mainly to finance the expansion of the existing manufacturing plant in Dabaspet, Bangalore, and for the construction of a project office in Bangalore. It also proposes to utilize part of the net proceeds to repay debt, fund working capital requirements and for other general corporate purposes.

Strengths

The company is one of the leading players in AC generator with an output capacity ranging from 1-52 MW. With strong installed base of 1538 generators so far the company is a proven player in the AC generator market.

Long-standing relationship with customers and leading engineering consultants who have approved the products. Repeat orders amount to about 98% and 96% of the total order inflow for manufacturing business in FY 2011 and FY 2010, respectively.

Weakness

The company's power projects business is largely skewed towards cement and power sector unlike the manufacturing business, which is well diversified in terms user/client industry base. Given the fact of intense competition in this segment unlike manufacturing / generator business, the ability of the company to win orders at comfortable margin has to be seen given the backdrop of slowdown in industrial capex on the back of hardening interest rate as well as surplus capacities in sectors such as cement. The power and cement sector accounted about 57% and 36% of the project business revenue in FY 2011.

The IPPs (independent power producer) market in power sector for small-medium power plants is facing various uncertainties such as fuel availability as well as poor financials of state utilities etc. This sets up an adverse background when the company is planning to go for higher ticket size EPC orders of up to 300 MW (from current 150 MW). It will have to face strong competition from established players to win an order. Given the long gestation period of EPC jobs it involves long working capital cycle, which adds pressure on interest cost.

Valuation

Consolidated sales for FY 2011 was higher by 17% to Rs 863.73 crore and the operating profit was higher by 25% to Rs 89.44 crore with OPM expanding by 70 bps on year on year basis. Eventually the net profit was higher by 40% to Rs 56.66 crore. The consolidated EPS for FY 2011 on post-issue equity of Rs 33.24 (at lower price band) and Rs 33.07 (at upper price band) works out to Rs 17.1 thereby giving P/E of 15-15.3 times.

Though there is no exactly comparable listed player, Thermax is the closest comparable player. Thermax (which is much larger and well-established compared to TDPS) is currently trading at 15.6 times FY2011 EPS.