JYOTI STRUCTURES Stable earnings; awaiting fresh orders:: Edelweiss

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􀂃 PAT and revenue in line; H1FY11 earnings on track
Jyoti Structures’ (JSL) Q2FY11 revenue and PAT were largely in line with our
estimates. While revenue grew at a modest 15% Y-o-Y, PAT jumped 19% Y-o-Y
led by both revenue growth and a lower tax rate. While PGCIL orders are skewed
towards H2FY11, JSL still managed to see a good traction in new orders, which
grew 72% Y-o-Y to INR 7 bn for Q2FY11.
􀂃 New orders improve; H2FY11 to see major orders
Beginning with a 41% Y-o-Y decline in Q1FY11 new orders, JSL posted a strong
72% Y-o-Y growth in new orders during Q2FY11 largely led by an INR 4 bn order
from Adani Power for a 765 kv transmission line. The company expects more
than INR 40-50 bn worth of new awards in the T&D EPC from PGCIL alone during
H2FY11. Also, many tenders on BOOT basis are expected to be awarded during
H2FY11, including North Karanpura from Reliance. JSL currently has an
outstanding order book of INR 42.5 bn (representing 205,000 tons of tower
supplies), up marginally 5% Y-o-Y, though flattish Q-o-Q. Of the current order
book, 81% comes from the domestic market. Segment-wise, 76% of the order
book is from transmission segment, while rural electrification forms 14%, with
the balance coming from the substation segment.
􀂃 Management clarifies on equity dilution
Management denied any equity dilution in the near term which has been a concern
for the stock since the past few quarters. However, we remain concerned and
believe the company may have to raise cash for its transmission BOOT projects.
􀂃 Outlook and valuations: Increasing expectations; maintain ‘HOLD’
While we expect JSL to post an earnings CAGR of 17% over FY10-12E on the
back of decent revenue visibility with current order book at INR 42.5 bn
(1.8XFY11E revenues), we do not perceive any major upside to our earnings
expectations. We expect domestic competition to remain a primary concern
given increase in the number of players vying for PGCIL orders. We maintain
‘HOLD/Sector Performer’ recommendation/rating on the stock, as we do not
foresee any major upgrade to our FY11 order growth assumption.