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Outlook for the Company
Stone India Ltd (SIL) is part of the Duncan Goenka Group engaged in the business of rail
products. SIL’s business segments include Carriage Business group, Locomotive Business
group and Train Power Business group supplying to the Indian Railways. SIL has posted
decent performance during the quarter ended 30th September 2010. The topline was
marginally below our expectations however margins were above estimates due to sharp
decline in Cost of goods sold as percentage of Sales. We continue to be positive on the
future prospects of the company and expect future growth to be driven by introduction of
newer products and tieup with RailRunner,U.S.A. At the current market price of ` 62, SIL is
available at valuation of 4.6x its FY12E EPS of ` 13.4. We initiated coverage with a BUY at
levels of ` 66 for initial target price of ` 87. We maintain our BUY rating on the stock at
current levels for target price of ` 87. We conducted a concall with the Management of
Stone India Ltd. Key highlights of the results and Concall discussions are summarized below.
Financial Highlights
• SIL’s net sales declined by 5.6% y‐o‐y during Q2 FY11 to ` 256.2 mn which was
marginally below our estimate.
• At the Operating level, SIL recorded growth of 2.6% to ` 32.6 mn on y‐o‐y basis.
Margins improved to 13.9% during Q2 FY11 as against 12.8% achieved during same
period last year.The margin performance was slightly higher than our estimates.
• Depreciation cost increased by 4.2% during Q2 FY11 to ` 4.3 mn and tax expense
decreased 6.2% y‐o‐y to ` 3.7 mn.
• SIL’s net profit grew 4.5% y‐o‐y during Q2 FY11 to ` 12.0 mn.
• EPS during Q2 FY11 increased 3.9% y‐o‐y to ` 1.6.
Conference Call Update:‐
• SIL expects to achieve topline of approximately Rs.1,500 mn during FY 2012. This
would be driven by growth in its Existing business, Contribution from newer products
and minor contribution from RailRunner business. It expects to achieve Net Profit of
Rs.100 to Rs.120 mn during FY2012. The margin improvement would be driven
primarily by newer products that command higher margin.
• SIL expects to incur Rs.1,900 mn during next 2 years as part of its RailRunner Project. It
has till now incurred Rs.100 mn for the project. At full capacity, SIL expects huge
contribution from this project in terms of topline and bottomline. RailRunner being a
high margin segment is expected to improve the overall profitability of SIL going
forward.
• SIL has already received Operational and Commercial clearance from Research Design
and Standards Organization (RDSO) and Railway Board. It has submitted its detailed
design for validation which is under process. It expects this venture to start
contributing significantly to the topline by FY 2012‐13.
• SIL has currently not yet decided on the financing part of the RailRunner deal. It is
considering combination of debt and equity to finance the expenditure.
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