Jyoti Structures, Strong revenue visibility; upgrade to Strong Buy: Alchemy

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Strong revenue visibility; upgrade to Strong
Buy
Revenue up 14.7% YoY; EBIDTA margin at 11.6%
Net sales grew 14.7% YoY to `5.42bn. Of the total revenue, 68% was derived from
transmission lines, 21% from rural electrification orders and 10% from distribution. The
EBIDTA margin grew marginally, by 20bps YoY to 11.6%, due to lower employee cost. The
net profit grew 19% YoY to `248mn, led by a lower tax rate (33.6% vs 37% in 2QFY10).
Order book of `42.5bn; order inflow at `7bn



The standalone order book as on 30 September 2010 stood at `42.5bn (up 9% YoY and 4%
QoQ) with an average execution cycle of ~20 months. Of this, transmission lines account for
71%, followed by rural electrification at 14% and sub-stations at 9%. Exports account for
19% of the order book. In terms of user base, SEBs account for 58% of the order book,
followed by PGCIL and the private sector at 28% and 14%, respectively. The order book of
Gulf Jyoti stood at `11.5bn (North Africa-`6.5bn, UAE (DEWA)-`4.5bn) with an average
execution cycle of 18 months.

The order inflow grew 66% YoY and 32% QoQ to `7bn, mainly driven by the private sector
(Adani Power- `3.6bn) and SEBs. PGCIL accounted for just 10% of the order inflow. The
entire order inflow was for transmission lines.
Industry outlook
The company expects orders worth `65bn to be finalised in the 2HFY11E. These include
orders of `30bn from PGCIL, `10bn from Reliance (rural electrification orders), `10bn from
Maharashtra (transmission orders), `5bn from Madhya Pradesh and two BOOT projects worth
`10bn. Given the strong order pipeline, the company expects the order book to reach `50bn
in FY11.

No equity dilution in near to medium term; capex of `400mn in FY11E
The management has categorically ruled out any equity dilution in the near to medium term
in the context of a healthy balance-sheet and scope for further increase in leverage. This
removes uncertainty with respect to equity dilution in the immediate future. However, we
foresee a case for dilution in event of the company winning a few large BOOT projects (to
fulfil its equity obligation in funding the projects).
The company plans to incur capex of `400mn (`220mn in 1HFY11) in FY11E, mainly for
acquisition of construction equipment

Valuations
We upgrade the stock to Strong Buy given attractive valuations (in context of strong order
backlog, healthy order pipeline). The key risk to our view includes pricing pressure on new
orders due to increasing competition.