TRF Negative Surprise Galore, Downgrade to Accumulate :: Emkay

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TRF

Negative Surprise Galore, Downgrade to Accumulate

ACCUMULATE

CMP: Rs 689                                       Target Price: Rs 754

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n     Q2FY11 results is loaded with negative surprise due to (1) one-offs provision of Rs0.3 bn and (2) dismal revenue booking in Projects division

n     Fires another salvo – revised Ebidta margins guidance from 10% to 7% - for reasons less understood and unexplainable

n     Downgrade in earning estimates for FY11E (down 43% to Rs36.1/Share) and FY12E (down 34% to Rs58.4/Share)

n     20% drop in market capitalization partly discounts earnings rOne-offs strikes down Q2FY11 performance – Net loss of Rs226 mn

TRF (Standalone) reported dismal performance in Q2FY11 with a net loss of Rs226 mn

– attributed to (1) One-off provision of Rs0.3 bn on certain projects in Port-Yard

equipments division and (2) Low revenue booking in Projects division (down 32% yoy) –

since the NTPC Barth & Mauda projects (bagged in Q4FY10) did not reach revenue

booking stage. Key highlights of Q2FY11 performance (1) Revenues declined 19% yoy

to Rs1080 mn – with Projects division down 32% yoy to Rs760 mn and Products

division up 22% yoy to Rs569 mn (2) Operating loss of Rs236 mn and (3) Net loss of

Rs226 mn. Only silver lining in Q2FY11 which went unnoticed - auto business restricted

the net loss in the quarter to Rs3 mn.

TRF revised Ebidta margin guidance from 10% to 7% - Sudden & Abrupt

change

Fires another Salvo- TRF revises its Ebidta margins guidance on MHE business from

10% to 7% for FY11E and FY12E. Sudden change in Ebidta margins are accompanied

by reasons less understood and unexplainable. Best explanation offered is

reassessment of profitability on all ongoing projects – led to reduction in Ebidta

guidance. Only silver lining, revenue guidance of Rs12 bn for FY11E (Rs8 bn MHE and

Rs4 bn for auto components) remains unchanged.

Downgrade our earning estimates by 43% & 34% for FY11E & FY12E

We have downgraded our consolidated earning estimates to factor for revised Ebidta

margins on MHE business. Consequently, we have revised our FY11E earnings

downwards by 43% from Rs63.7/Share to Rs36.1/Share and FY12E earnings

downward by 34.1% yoy from Rs88.7/Share to Rs58.4/Share.evision -  Downgrade from ‘BUY’ to ‘ACCUMULATE’ with revised target price of Rs754/Share