TAAL Enterprises (MCAP Rs 520 crore, 15x FY23E PE) - ER&D IT service player, turning around strongly
ER&D player focused on Oil & Gas, Aerospace, Industrial Equipment, Civil, etc.
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Taal Enterprises is primarily the holding company of Taal Tech, which provides niche engineering & technology solutions (ER&D services) to verticals like aerospace, oil & gas, automotive, railways, industrial & heavy equipment, etc.
Taal Tech had Rs 130 crore revenue in FY22 (FY23E Revenue of Rs 160 crore), operating at ~30% EBIDTA margins. It derives ~65% revenue from US, ~35% from Europe. Notable competitors within the Indian peers are Cyient, LTTS, Axiscades, LTTS, etc. 4 key verticals –
Product Development Engineering (aerospace, auto, trailers, industrial machinery & equipment) – 43% mix.
Plant Service Engineering (service to EPC companies in oil & gas refineries and petrochemical space) - 34% mix.
Civil & Infra (Building Information Modelling – digital representation of physical/functional characteristic of a building) - 19% mix.
IoT engineering (development of IoT infra like censor, devices, etc. using a mix of software & hardware engineering solution) – 5% mix.
Tanega group had 3 notable businesses in past – (1) ISMT (Indian Seamless Metal Tubes) – now sold to Kirloskar Ferrous, (2) Tanega Aerospace & Aviation (mfr. supplies/services to defense sector cos HAL, DRDO, etc.), likely to sell the machines & lease space to a Salem based aerospace company, AEPL), and (3) Taal Technologies – which is the ER&D service company. Hence, Taal Tech is one of the key focus businesses for management. Mr. Prakash Saralaya was MD of Taal Tech for 2007-2019, post which Mr. Salil Tanjea (promoter) has taken up the lead role.
Taal Enterprises now owns 100% of Taal Tech, but it also used to have an air-plane charter services as operations till FY20 (a negligible % through). They are not operating in that segment at all now, thus fully focused on the ER&D business. In Oct 2022, company approved merger of 100% subsidiary Taal Tech into Taal Enterprises. NCLT approval is awaited, which once happens will eliminate the hold. co structure.
Taal Enterprises trades at Enterprise Value of Rs 450 crore (MCAP Rs 520 crore, cash of Rs 65-70 crores) – at CMP Rs 1660. Taal tech business clocked Rs 140 crore revenue in FY19 but had gone through the slowdown/stagnation over FY19-22, business has again started to pick up since FY22/23. FY23 expected revenue of Rs 160 crore, and 30% EBIDTA margins yielding Rs 48 crore EBIDTA. On FY23E PAT of Rs 35 crore, Taal Enterprises at 9.3x FY23 EV/EBIDTA, 15x FY23 PE. There are enough triggers to be positive on stock – (1) Management’s focus business, (2) Hiring trends, Employee count has increased to 500+ today, vs 410 as on FY22 (~25%+ growth), (3) Niche ER&D verticals, (4) Hold. Co. Collapsing, (5) Attractive Price, making risk-reward compelling.