Jyoti Structures: Order flow will be next trigger :: HSBC

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Jyoti Structures Ltd
OW(V): Order flow will be next trigger
 In-line 2QFY11 profits (+19% y-o-y to INR248m);order book is
stable at INR42bn(c2x FY10 sales)
 Valuation already discounts Equity dilution risk; we believe
risk benefit trade-off is attractive
 Maintain OW(V) and raise TP to INR185 (INR170); new order
flow would be next trigger


2QFY11 profits rise 19% y-o-y; results in line with consensus: Jyoti Structures
2QFY11 net profit grew by 19% y-o-y to INR248m. This was driven by sales growth
(+15% y-o-y) and margin expansion (+24bp to 11.6%). The reported profit was in line
with consensus estimates.
Order pipeline looks strong which will provide next trigger. Jyoti had a closing order
book of INR42.5bn (c2x FY10 sales) at the end of 2QFY11. Further, the company has a
strong bid pipeline from clients like Powergrid, Maharashtra State Electricity
Transmission Co. Ltd (MSETCL), and Reliance Infrastructure transmission line. Any new
order flow could provide the next trigger for the stock.
Valuation factor in equity dilution risk as JYS currently trades at FY11 PE of 10x,
which is at the lower end of the historical 1-yr forward PE band of 10-15x. We believe
that the equity dilution risk is already factored in and given strong order visibility and
earning momentum; we believe that stock is likely to re-rate.
Maintain Overweight (V) raise TP to INR185 (INR170): We like JYS based on order
visibility and strong earning momentum. Based on target PE of 11x and March-12
earnings (roll over from Sept-11), we arrive at our target price of INR185 (INR170). We
have an Overweight (V) rating on the stock.