Lanco Infratech: Buy (UBS Key Call) rating with a price target of Rs105

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UBS Investment Research
Key Call: Lanco Infratech
2Q FY11: Seasonality impacts performance
􀂄 2Q FY11: Recurring PAT up 4% YoY
In 2Q FY11, Lanco’s net sales were up 6% YoY to Rs20.42bn and EBITDA
increased 33% YoY to Rs4.17bn. Reported PAT declined 43% YoY to Rs705m.
However, adjusted for higher depreciation (Rs873m) and forex gain (Rs299m),
recurring PAT was up 4% YoY to Rs1.28bn. The numbers have been hit primarily
due to lower merchant tariffs in the quarter, a trend in-line with other sector results.


􀂄 EPC order book is Rs254bn, Lanco has placed new orders for 10,560MW
Currently, the EPC and Construction Order book stands at Rs254bn, excluding the
new orders placed for 8 new projects being developed by Lanco for capacity of
10,560 MW. The placement of such a large order confirms our belief that the
company has a very strong project pipeline. The other key developments include
debt sanction for the Kondapalli III (2 x 366 MW), Amarkantak expansion (2x 660
MW) and Vidarbha (2 x 660 MW).

􀂄 Conference call on Nov 12, 2010 at 9:30am IST
Apart from under-execution projects, Lanco has made good progress on its new
projects. As on 30th September 2010, the company has done a capex of Rs37.3bn
on 4,700MW of Amarkantak expansion, Kondapalli III, Babandh and Vidarbha.
We expect to get more details on this and other latest developments at the company
during the conference call (scheduled at 9:30am IST on 12th Nov 2010).

􀂄 Valuation: Buy (UBS Key Call) rating with a price target of Rs105
We base our price target on a sum-of-the-parts valuation. We value Lanco as a
conglomerate with power contributing 66% of its valuation and EPC 28%.