BL KASHYAP & SONS Steady quarter : Edelweiss

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BL KASHYAP & SONS
Steady quarter


􀂃 Revenues and PAT in line with estimates
BL Kashyap & Sons’ (BLK) Q2FY11 revenues, at INR 3.1 bn, were in line with our
expectations; top line grew 29% Y-o-Y and 4% Q-o-Q. EBITDA margins,
however, came in below our estimate, at 7.6%, down 110bps Y-o-Y and 80bps
Q-o-Q. The company attributed this to the heavy monsoons which led to lowerthan-
expected revenue booking and consequently lesser fixed cost absorption (in
% terms) during the quarter. BLK was able to manage its interest costs well
during the quarter; as a result, PAT margin, at 3.3% (down 50bps Y-o-Y and
10bps Q-o-Q) was as per our expectations.


􀂃 Order accretion remains robust
The company’s current order book is more than INR 40 bn (INR 26.0 bn in
Q2FY10). Order accretion matched revenue during the quarter. Order book/ TTM
(trailing 12 months) revenue, at ~3.5x, is robust and likely to lead to strong
revenue growth going ahead.

􀂃 Steady progress on real estate development projects
BLK’s three Bengaluru retail projects are on track. While finishing work on one
project is going on, the balance two are expected to be completed over the next
couple of months. The company expects to start the monetisation process of its
realty projects soon. The real estate subsidiary does not need additional support
from the parent company; monetisation of its projects will reduce the parent
company’s debt and improve its profitability.

􀂃 Outlook and valuations: Attractive; maintain ‘BUY’
With a robust revenue visibility, BLK is poised to grow strongly going ahead. We
have calibrated our estimates keeping in mind H1FY11 performance. At CMP of
INR 39 for revised estimates, the stock is available at attractive valuations of
15.5x and 10.8x for FY11E and FY12E, respectively, on P/E basis. We believe
current valuations do not adequately capture the company’s strong growth
prospects. With improvement in execution, operating leverage should kick in
going ahead. Any value arising from development or outright sale of its realty
projects will provide upsides to our estimates and be a positive trigger for the
stock. We find the company’s long-term growth prospects attractive and
maintain our ‘BUY’ recommendation. We rate it ’Sector Outperformer’.