Business Analysis 6: Viviana Power Tech Ltd

Though there's still froth in the SME market even after falling 30-40% from their highs, we can still find good quality businesses for study purposes

Jan 03, 2025

Though there's still froth in the SME market even after falling 30-40% from their highs, we can still find good quality businesses for study purposes. Those may be or may not be investible but are worth studying and keeping on watchlist.

We will delve deeper into one of such companies in this content - Viviana Power Tech Ltd. They are in the power sector and as you know there are massive tailwinds for almost all the players.

The company is a leading service provider in Power transmission, distribution and renewable energy projects. Their services include supply, erection, testing and commissioning of power transmission lines, EHV substations, power distribution network establishment, underground cable carrying and upgradation of existing power systems.

Recently, they have started their transformer manufacturing unit also in 2024. Now they cater to Power EPC and Distribution Transformer manufacturing segments. So, business operations mainly comprise of two main tasks - supply and service.

Order book is a very important part of such companies. So, their order book now stands at 236 cr+ as of Q2 FY25 which is under implementation. Already 450+ cr order is in the pipeline or under bidding. Their success rate over the last 5 years has been between 10-15%. So, maybe 60-65 cr order they could get from that 450 cr pie. Also they target to achieve 250 cr order book by the end of FY25 with a projected turnover of 160 cr. They have set a target for FY26, FY27 as well.

FY26

Order book target - 350 cr

Revenue projection - 240 cr

FY27

Order book target - 525 cr

Revenue projection - 365 cr

So, there's a well articulated plan for the future pathway of the business. They have been doing quite well since their IPO. Their clients include big names such as BHEL, Adani, GETCO, IRB, Welspun, Suzlon, Reliance etc. Because of their fine track record, they have established a good relationship with their clients.

Now, let's deep dive into their new business which is distribution transformer. Right now, they are starting with 1250 kvA of rating capacity and production capacity of 7000 units/yr. They have set a target for FY26, FY27 as well.

FY26

Rating capacity upto 7 MVA

Production capacity upto 10000 units/ yr

FY27

Rating capacity upto 20.5 MVA

Production capacity upto 20000 units/yr

Again, it's a clear pathway to achieve the projected turnover over time reflecting through their confidence. They plan to manufacture substation with an integrated solution for power distribution starting from next year. Earlier the business mix between govt and private would be like 10% amd 90%. Now, most of their orders are coming from govt with 90% and the rest 10% from private. However, this is not a concern. They change this mix frequently where there is tailwind.

I like the way they are doing business because there's no right of way issue. They don't stress on land acquisition where there are too many issues. So the margin is higher as compared to its peers.

As of now the company is trading on NSE SME platform but the plan is there to migrate to main board. It will ultimately increase the number of shareholders in the future. One more important point to note is that they raised money through preferential in Sept 2024 at a price of 625 INR.

Valuation

Well, coming to valuation, I think the most important thing, the business looks expensive as compared to its peers. As per their IPO draft, they mentioned KEC International, and Kalpataru Projects as their competitors.

At the time of its IPO, Viviana was trading at 1.5x of its revenue, around 5x of its net worth and 11x of its net profit. Now they are trading at 7x of its revenue, 13x of its book, 70-75x of its net profit and 45x of its EV/EBITDA.

So, it looks clearly expensive now, right? Also, the stock has run a lot. Okay, I agree that when they came to market there was not enough tailwind for the sector. Now there are too many. That means the optimism is also priced in right now. It will be difficult to make multibagger returns (5-10x returns) from this business over the next 3-5 years. Until there's something big enough tailwind happening in the sector it is difficult to pay that much premium.

Let's see it through different lenses. There are 3 scenarios.

The stock has to come down to its fair value
The stock has to consolidate for a long long time, god knows
The stock has to deliver 70-80% CAGR over the next few years

Anything could happen.

Let's come to their peers.

KEC International is trading at 1.5x of its revenue, 6x of its book, 75x of its net and 28x of its EV/EBITDA. On the other hand, Kalpataru is trading at just above 1x of its revenue, 4x of its book, 40x of its net and 16x of EV/EBITDA.

It clearly states that Viviana is trading at higher premium. Why would we pay higher premium? Because of their new business that hasn't even established yet? Because of too many tailwinds in the sector? Because of higher margin? Considering the past growth and fantastic financials, we can't buy anything at any price but it's a good company to keep on watchlist with well established clients and diversified businesses. Even if you want to buy I would like you to wait for 20-30% correction or buy in a staggered manner in every big fall. Even if it doesn't happen, don't regret for not buying. There are too many opportunities in the market, in the Indian market especially.

Also, it seems that Kalpataru will be a great bet right now as per peer comparison. Haha. I got many stocks from peer research. Please don't take it as a buy or sell call. This is not an investment advice. I'm not an advicer. It's purely for educational purposes only.

One more risk I would like to point out is that Viviana's trade receivables. It's an important metric to track for any capital goods company. 10% money is always retained as long as the work is not finished. However, they assure that there's 58.62 cr debtor amount as of Q2 2025 of which more than 50% is received by 4th Nov and the rest except the retention money will be paid by Nov-Dec 2024.

So it will be better to keep tracking of such good businesses like Viviana.

Thanks for reading

Take care

Rabi

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