Sunil Hitech is one of the few companies in India which is pre? qualified to undertake BOP package & erection, testing and commissioning of boilers and auxiliaries of up to 660 MW capacities. Its skill in pressure parts, critical piping, large diameter piping work apart from ability to fabricate and erect 100000 MT of structures in a year make it competitive player in thermal power plant construction space.

We believe the underperformance of share price of Sunil Hitech as compared to its peer was mainly on account of decline in order book position of company which is expected to improve in forthcoming quarters.

The favourable policy initiatives by government in the form of higher ROE for utility and capping the spot power rate at higher level of Rs. 8 per unit will encourage investment in power generation capacities. We believe the market opportunity for Sunil Hitech for next five year is over Rs. 50000cr.

Sunil Hitech Engg. & Mfg. Pvt. Ltd (SHEM), subsidiary of Sunil Hitech and manufacturer of Boiler pressure parts is expected to see high demand growth for its products in coming period.

We expect Sunil Hitech's revenue and PAT to grow at 33% & 35% CAGR respectively between FY09? FY11. The stock discounts FY09, FY10E and FY11E adjusted earnings of Rs. 19.7, Rs. 26.0 & Rs. 35.3 at 9.2x, 7.0x and 5.2 respectively. The stock trades at 1.3x for FY09 and 1.1x FY10E to book value. The ROE for FY11E is expected at
19.3%.

We are positive on the growth prospects of the company and recommend BUY on the stock with a price target of Rs. 283 over a 12?18 month horizon implying upside potential of 55%.

Sunil Hitech Engineering Ltd, a leading player in fabrication, erection & commissioning of power plants was established in 1998. The company provides services in Fabrication, Erection & Testing and Commissioning of coal handling plants, ash handling plants, turbine hall generator buildings, Bunkers, ESPs (Electro Static Precipitators), Boilers etc in the Power Plants.

Over a period Sunil Hitech has gained engineering, execution and technical expertise related to its services for thermal power plants including doing individual works under Balance of Plant (BoP). Sunil Hitech is one of the few companies in India which is pre? qualified to undertake BOP package & erection, testing and commissioning of boilers and auxiliaries of up to 660 MW capacities.

In addition to this, Sunil Hi Tech designs, supplies, transports and provides the commissioning of EHV (Extra High Voltage) lines of substations, CW (Cooling Water) pipelines, large diameter piping, bunker belts, steel flue can; transformers sub? stations and allied works, as well as the EPC (Engineering, Procurement &Construction) contract for fuel oil system.

Sunil HiTech has 100,000 tpa of steel fabrication capacity and specializes in building steel structures for thermal power plants and has also established 1,00,000 tpa of equipment installation capacity in power plants. Sunil Hitech has storng asset base with more than 215 cranes in the capacity from 8 Ton to 230 Ton and over 1550 welding equipments. Apart from the power sector Sunil Hitech also fabricates and erects structures for steel plants.

Sunil Hitech caters to a number of high profile clients like Mahagenco, Chattisgarh State Electricity Board, Gujarat State Electricity Corporation Ltd., Haryana Vidyut Prasaran Nigam Ltd, Madhya Pradesh Power Generating Co. Ltd, BHEL, NTPC, Balco, Hindalco, JSW, Punj Lloyd, Reliance Energy, Sterlite Industries, Jindal Steel & Power Ltd, etc. The order book of Sunil Hitech was Rs 1145 Crs at the end of 30th June
2009. Of this order book around 75% of the orders are from thermal power generation sector, 5?7% from steel sector, 3?4% from Hydro power sector, 10?12% from EPC contracts and around 5?7% from T & D segment.

Sunil Hi? Tech Engg. Mfg. Pvt. Ltd.(SHEM) is a subsidiary of Sunil Hitech. The company is located in Industrial Zone of MIDC Butibori near Nagpur, Maharashtra. The company was established as backward integration to help Sunil Hitech to augment and consolidate the Renovation & Modernization (R&M) expertise in the Power Sector. SHEM manufactures major pressure parts and High Pressure piping components needed for Boiler Rehab and R & M works with design engineering manufacturing and onsite installation capability.

Gangakhed Sugar & Energy Pvt Ltd is an associate company of Sunil Hitech Engineers Limited. Sunil Hitech has invested Rs 20 Crs in the company and has a holding of about 20%. The project is being developed as an Integrated Cane Processing Plant (ICPP) with a Diversified Product Portfolio and a De? risked Business model, using the state of Art Technology. The Integrated Project is aimed at utilizing sugar cane to its full potential including all of its by? products such as bagasse, molasses, press mud and water. The project is located in the cane surplus Distt of Parbhani, Maharashtra. In addition to the sugar mill the company also has a cogeneration plant of 30 MW capacity and is proposed to run the power plant for 330 days in a year by utilizing the surplus bagasse from nearby sugar mills, bio mass, coal, agro waste etc. Sunil Hitech has done the entire EPC work for this plant. The sugar plant along with the power plant is expected to start operation from Dec
2009.

Sunil Hitech has been selected as a highest bidder for coal mine in JV with Maharastra State Mining Corporation and deposited a sum of Rs. 11.25 cr. The process of formation of JV is in progress and Sunil Hitech will be holding 49% shares in the company.

Sunil Hitech came out with an IPO of 34.75 lakhs shares at the price of Rs. 100 per share in Feb 2006. In Jan 2008 Sunil Hitech successfully raised Rs 81 Crs through a QIP offering. The offering comprised of
2,250,000 equity shares of Rs. 10/? each for cash at a price of Rs. 360 per equity share. The money raised was utilized in purchase of equipments, expansion of the current business as well as investments. Before QIP, in August 2007 Sunil Hitech issued 38 lakhs warrants to promoter group to be converted into shares at Rs. 146 within 18 months. Since the share prices came down the promoter didn't subscribe to these warrants and the same got lapsed in April 2009.

Sunil Hitech made an investment of Rs 20 Crs in Equity Linked Mutual Funds out of the money received from QIP. The value of the investments diminished due to the fall in stock market. The value of the investments fell to Rs 6.6 Crs and the company had written off Rs 13.4 Crs during FY09. Now with the improvement in the stock market the value of the investment has already increased by around Rs 5 Crs.

o Increasing Opportunities in Power Sector: Government has taken various initiatives to increase the investment in power generation capacity. One of the initiatives is that the government has increased the ROE from 14% to 15.5% for power producer who sales power on PPA or long term agreement. This will augment availability of capital for power generating utilities which can be used for further capital investment.

Apart from this the rate of electricity in spot market has encouraged private players to expand the power generation capacity more aggressively. Government has not shown any willingness to cap these spot rates at lower levels. Even the higher cap on rate recently imposed for 45 days by Central Electricity Regulatory Commission (CERC) was at Rs. 8 per unit for power traded on power exchange or through bilateral agreement. This still offers huge margin to power producers considering their cost at around Rs. 1.5 to 3.5. These higher spot rates are costing a lot to state power distribution companies but still to encourage higher investments in power sector, government has not shown any willingness to cap these rates at lower level.

BHEL which had supplied equipments for around 88000 MW of power generation capacities (Operational) out of total installed capacity in Indian of 138165 MW as of March ?09, has planned to expand the production capacity from 10000MW PA to 15000MW PA. This will be operational by Dec? 09. This increase in capacity will reduce the waiting cycle of utilities for expansion of capacities and will generate more orders for fabrication, erection, testing and commissioning of main power plant equipments and Balance of Plant work.

BHEL had booked Rs. 47167 cr orders under power sector during FY09 as against Rs. 41069cr orders booked in FY08 indicating higher demand even in recessionary conditions.

Normally order for Fabrication, Erection, Testing & Commissioning of BTG and BOP works are awarded around 9?12 months after the main plant orders are placed. This indicates the order inflow during the current year for work carried on by Sunil Hi Tech will continue to be growing.

CRISIL has estimated total power generation capacity addition of
78682 MW in next five years, presenting an investment opportunity of Rs. 7.5 trillion. Out of this Rs. 4.8 trillion will be in generation and in that around 85% will be in thermal power plant, which is the target market for the company.

Sunil Hi Tech takes contract mainly without material for fabrication, erection, testing & commissioning of BTG and BOP work. The revenue generation capacity of these works is around Rs. 0.75cr per MW. With targeted thermal power generation capacity addition of 85% of 78682 MW in next 5 year, the market opportunity for Sunil Hi Tech is huge at Rs. 50000cr.