MAN INFRACONSTRUCTION Steady revenue growth:Edelweiss

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MAN INFRACONSTRUCTION
Steady revenue growth; margins decline


􀂃 Moderate revenue growth; margins decline
Man Infraconstruction’s (MICL) Q2FY11 top line, at INR 1.5 bn, jumped 38%
Y-o-Y and 4% Q-o-Q. However, EBITDA margin came in at 18.7%, down 590bps
Y-o-Y and 540bps Q-o-Q. PAT for the quarter stood at INR 180 mn against INR
171 mn and INR 219 mn in Q2FY10 and Q1FY11, respectively. PAT margin, at
11.8%, dipped 370bps Y-o-Y and 310bps Q-o-Q.


Revenue growth and, consequently, profitability was impacted by heavy
monsoon and increase in raw material costs due to sand availability issues in
Mumbai (resolved now); consequently, direct costs as a percentage of sales rose
770bps Q-o-Q and 630bps Y-o-Y. Profitability (in % terms) was also hit by lower
share of projects with free supply of raw materials in the quarter.

􀂃 Order book dips sequentially, but picks up in October
The company’s order book stood at ~INR 17 bn at Q2FY11 end, down from INR
19.5 bn in Q1FY11; the dip was on account of cancellation of an ~ INR 1.2 bn
order. While order intake during the quarter was muted, MICL has bagged fresh
orders worth ~ INR 3.8 bn in October—INR 1.43 bn order for residential towers
for Kumar Sinew Developers at Pune, INR 1.79 bn order for residential towers
for National Dyes at Thane, and two orders from DB Group for ongoing projects
in Mumbai at Mahul (INR 510 mn) and Jacob Circle (INR 100 mn).

􀂃 Revenue break up
MICL booked revenue of INR 1.5 bn in Q2FY11—INR 1.0 bn from the residential
segment, INR 0.2 bn from commercial, INR 0.25 bn from infrastructure, and the
balance from the PMC segment.

􀂃 Outlook and valuations: Fairly valued; maintain ‘HOLD’
We expect MICL to continue to grow rapidly, driven by: (1) upturn in the realty
space; (2) its entry into new verticals such as road BOT; and (3) the promise of
increased orders in the infrastructure space. At CMP of INR 339, for revised fully
diluted EPS estimate of INR 20.2 and INR 24.5, MICL is trading at P/E of 16.8x
and 13.8x, for FY11E and FY12E, respectively. We believe the stock’s current
valuations justify its strong growth potential and future stock performance is
likely to track the company’s order intake and revenue growth trajectory. We
maintain ‘HOLD/ Sector Performer' recommendation/rating on it.