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Techno Electric & Engineering Company Ltd

| Q2 FY26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤13th Nov 25

Summary : Techno Electric demonstrates solid H1 FY26 performance, driven by a robust order book and strategic data center expansion, while navigating execution challenges and selective bidding.

Management Perspective positive : We remain firmly on course to meet our financial year '26 targets. We remain on track to meet our H2 targets, supported by a robust order book and clear visibility of further opportunities. We are confident to achieve INR50 plus as the EPS for the current year. We are in a very sweet spot as a capability in India in this space.

Concall Report Analysis & Insights

Business Overview

  1. Q2 FY26 revenue from operations was INR839 crores with 13.8% EBITDA margin.
  2. H1 FY26 revenue reached INR1,352 crores, showing 23.6% EPS growth year-on-year.
  3. Order book stands robust at INR10,350 crores, providing strong revenue visibility.
  4. Chennai data center Phase 1 inaugurated; Gurgaon Edge data center commenced commercial operations.
  5. Company is undergoing a transformation and digitization drive for execution efficiency.

Future Growth Prospects

  1. Targeting INR3,500-INR5,000 crores top line over the next two years.
  2. Expect to achieve INR50+ EPS for current year and INR75 for next year from conventional business.
  3. Data center vertical projected to contribute INR125 crores in top line by FY27.
  4. India's power demand surge and grid modernization offer significant T&D segment opportunities.
  5. Expanding data center footprint positions the company as a full-stack player in digital infrastructure.

Management Insights

  1. Management is confident in meeting FY26 targets despite construction ecosystem challenges.
  2. Focus is on consolidating operations to improve efficiency and scalability given sustained order book growth.
  3. Data centers are shifting focus to high-value service-led offerings like cloud and managed services.
  4. India's power demand is surging, driving significant investment in transmission infrastructure.
  5. Company is adopting a selective bidding approach due to margin pressure in new tenders.

Signs of Skepticism

  1. EPS guidance of INR50 for FY26 seems ambitious given H1 EPS of INR18.48, despite seasonality.
  2. Mumbai data center completion delayed from December to financial year-end due to land handover issues.
  3. Data center revenue contribution for FY26 is modest, with significant impact expected only in FY27.
  4. Analyst questioned if FY27 data center operations might result in a negative PAT, which management did not detail.
  5. Order inflow target reduced from INR3,500 crores to INR3,000 crores, though management states sufficient business.

Risk Factors

  1. Project-driven business and seasonality cause quarter-on-quarter results to be incomparable.
  2. Construction ecosystem challenges, delayed site turnovers, and environmental issues impact project execution.
  3. Supply chain constraints and climate change related challenges affect project delivery.
  4. Renewable energy projects face delays due to inadequate transmission infrastructure and PPA issues.
  5. Aggressive bidding by competitors in smart meter tenders impacts new order acquisition.

Good To Know

  1. Cash balances are INR2,600 crores, equivalent to INR225 per share.
  2. Other income is expected to be stable at around INR150 crores annually, primarily from treasury activities.
  3. The company has achieved 4x revenue growth in the past three years with modest manpower increase.
  4. Data center capex for Chennai Phase 1 was INR470 crores, with INR85-100 crores planned for ongoing projects.
  5. Smart meter order book of 2.5 million units is 50% deployed, with completion targeted by September '26.

Key Drivers

  1. Data center revenue growth in FY27.
  2. Strong order book ensures future revenue.
  3. India's grid modernization drives demand.
  4. Strategic partnerships enhance project execution.

Key Analyst Discussions

Competitive Environment

  1. Company is a preferred supplier to major players like Power Grid, Adani, and Sterlite.
  2. Supply chain is constrained due to high demand from renewable power capacity deployment.
  3. Techno Electric's long-standing relationships with suppliers provide an edge over new players.
  4. India's data center industry is consolidating, with 28 operators managing over 130 facilities.
  5. Google's large-scale data center campus in Visakhapatnam signals an industry inflection point.

Market Trends & Consumer Behavior

  1. India's power demand reached a peak of 250 gigawatts in May 2024, driven by industrial expansion.
  2. Data center industry operates at a healthy 80% utilization rate, reflecting sustained demand.
  3. Renewable energy growth is hindered by insufficient transmission grid and feeder availability.
  4. Government policies are streamlining grid assets and reducing right-of-way delays.
  5. ISTL charge waiver and battery storage schemes strengthen project economics and grid readiness.

Financial Highlights

  1. Management confirmed FY26 EPS guidance of INR50 from ongoing operations, excluding data centers.
  2. Tax rate for the year is expected to be around 20% on pretax income, excluding dividend income.
  3. H2 margins are guided to be 13.5% to 14%, consistent with historical averages.
  4. Other financial assets, mainly unbilled smart meter assets, are stable at INR1,000-1,100 crores.
  5. Cash flow from operating activities is expected to remain stable for the full year.

Product Composition

  1. Chennai data center Phase 1 is 5.6 megawatts, with total project capacity of 24 megawatts.
  2. Gurgaon Edge data center capacity is 60% consumed by RailTel, remaining for private cloud.
  3. Noida and Calcutta are getting 16-megawatt data centers under revenue share models with RailTel.
  4. Smart meter deployment is progressing, but new bids are selectively pursued due to margin pressure.
  5. Managed bare metal services launched in Chennai are receiving strong customer interest.

Strategic Considerations

  1. Company funds data center capex through internal accruals for the next 1-2 years.
  2. Future data center funding may involve an equity partner, targeting 55% debt, 45% equity mix.
  3. Management is evaluating strategic partnerships for TBCB projects and competitive opportunities.
  4. Focus is on executing existing orders rather than aggressively bagging new ones due to execution capacity.
  5. Company aims to grow at 40% per annum for the next two years, then enter a consolidation phase.
Techno Electric & Engineering Company Ltd (TECHNOE) Concall Report Analysis & Insights | Dhanarthi