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For 3QFY2011, Patel Engineering (PEL) posted disappointing numbers on
consolidated and standalone basis. Going ahead as well, we believe recovery to the
growth path will take time as the order inflow concerns loom large. Hence, we are
downgrading our earnings estimates for FY2011 and FY2012 by 50–60%. Further,
the company has not provided for the recent IT raid (which would accrue in the next
few months), thereby increasing the tax rate going ahead; and the hedging loss
incurred due to project cancellations, which we believe would materialise and
impact the company’s financials. Hence, we are downgrading the stock to Neutral
from Buy, given the pressure on C&EPC’s earnings, muted order inflow, uncertainty
over tax outflow and hedging loss.
Disappointing results: For 3QFY2011, PEL posted a decline of 31.3% yoy and
43.3% qoq in net sales. The disappointment was on both the domestic and
international fronts as revenue witnessed a major slowdown mainly on account of
extreme weather conditions. EBITDA margin came in at 13.4% (adjusting the
hedging loss under total operating expenses). The dismal top-line performance
resulted into an 80.2% yoy decline in the bottom line.
Outlook and valuation: PEL’s core C&EPC business is currently facing headwinds
with its large projects facing delays and disappointing order inflow. Further, the
longer gestation nature of its order book, macro headwinds and increasing debt
levels put the company’s growth visibility for the next few quarters under doubt.
Hence, we are downgrading the stock to Neutral with a revised fair value of
`220/share (earlier `353/share).
Bottom line declines by staggering 80.2%
During the quarter, operating margin came in at 13.4% (18.8%) adjusting for the
hedging loss, below our estimates, mainly on account of lower revenue growth.
The reported numbers include `50cr as hedging loss in interest cost, which has
been credited to the top line as well. We have considered the same as normal cost
and included it in the total operating expenditure. Therefore, we are excluding the
same from interest cost. The company has claimed that it will be receiving the
same from the client in the next 6–8 months, but we do not expect this to happen.
On the bottom-line front, PEL posted a staggering decline of 80.2% due to dismal
top-line performance. Going ahead as well, we believe recovery to the growth
path will take time, as the order inflow concerns loom large.
Project updates
PEL has invested equity of `250cr in its power ventures, which we have valued at
1x. Land for the first phase (1,050MW plant in Nagapatnam district, Tamil Nadu)
has been acquired and coal linkages are also in place from the Mahanadi coal
fields. Management had earlier expected financial closure by December 2010 and
construction work was likely to start in 2QFY2012. However, pending final
clearance from the Tamil Nadu government to commence construction activity, the
project has witnessed delays and can only be expected in 2HFY2012.
In real estate, management indicated that the progress is satisfactory with
Smondoville-1 completely sold out (total 1,123 apartments), which also implies
that the project does not require cash and would be self funded. During
3QFY2011, PEL booked `13.5cr from real estate from its Smondoville Bangalore
project and PAT of `38lakhs. Phase II and III of Smondoville are 80% sold; and the
company has recently launched Phase IV, which has witnessed good response.
PEL’s Noida project is completely sold out. In Mumbai, PEL has roped in an anchor
tenant for Corporate Tower at `120–130/sq. ft. and completion is likely to be in
18 months.
Outlook and valuation
PEL’s core C&EPC business is currently facing headwinds with its large projects
facing delays and disappointing order inflow. Further, the longer gestation nature
of its order book, macro headwinds and increasing debt levels put the company’s
growth visibility for the next few quarters under doubt. Hence, we are downgrading
our earnings estimates for FY2011 and FY2012 by 50–60%.
Further, PEL has not provided for the recent IT raid (which would accrue in the next
few months), thereby increasing the tax rate going ahead; and the hedging loss
incurred due to project cancellations, which we believe would materialise and
impact its financials (though we have not factored these developments due to
uncertainty). Hence, we are downgrading the stock to Neutral from Buy with a
revised fair value of `220/share (`353/share), given the pressure on C&EPC’s
earnings, muted order inflow, uncertainty over tax outflow and hedging loss.
Our SOTP fair value of `220 is based on a target P/E of 8x (lower than its
historical average and peers to factor in the uncertainty of IT raid and claims with
clients) FY2012E EPS of `14.0 and valuing the company’s investments in real
estate, power and road at `107.5/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IVRCL Infrastructure – 3QFY2011 Result Update
Angel Broking recommends a Buy on IVRCL Infrastructure with a Target Price of Rs. 126.
For 3QFY2011, Patel Engineering (PEL) posted disappointing numbers on
consolidated and standalone basis. Going ahead as well, we believe recovery to the
growth path will take time as the order inflow concerns loom large. Hence, we are
downgrading our earnings estimates for FY2011 and FY2012 by 50–60%. Further,
the company has not provided for the recent IT raid (which would accrue in the next
few months), thereby increasing the tax rate going ahead; and the hedging loss
incurred due to project cancellations, which we believe would materialise and
impact the company’s financials. Hence, we are downgrading the stock to Neutral
from Buy, given the pressure on C&EPC’s earnings, muted order inflow, uncertainty
over tax outflow and hedging loss.
Disappointing results: For 3QFY2011, PEL posted a decline of 31.3% yoy and
43.3% qoq in net sales. The disappointment was on both the domestic and
international fronts as revenue witnessed a major slowdown mainly on account of
extreme weather conditions. EBITDA margin came in at 13.4% (adjusting the
hedging loss under total operating expenses). The dismal top-line performance
resulted into an 80.2% yoy decline in the bottom line.
Outlook and valuation: PEL’s core C&EPC business is currently facing headwinds
with its large projects facing delays and disappointing order inflow. Further, the
longer gestation nature of its order book, macro headwinds and increasing debt
levels put the company’s growth visibility for the next few quarters under doubt.
Hence, we are downgrading the stock to Neutral with a revised fair value of
`220/share (earlier `353/share).
Top line a complete white wash
PEL posted a decline of 31.3% yoy and 43.3% qoq in net sales during the quarter.
This was due to 1) flash floods that affected two of the company’s hydro projects
(namely Teesta low dam and Parbati), leading to revenue loss of `60cr; 2) heavy
snowfall in the US, which affected the company’s international operations; 3)
cancellation of Loharinagpala hydro electric project (4x150 MW) from NTPC; and
4) delay in the execution of Pranahita Chevella irrigation project. Management has
indicated that its hydro projects (Teesta low dam and Parbati) have started
contributing to the revenue and things are back on track. The total cost for the
projects is ~`1,050cr.
On the order book front, PEL disappointed with order inflow at a mere `1,200cr
for 9MFY2011; and the current order book stands at `10,000cr (4.1x FY2011E
revenue) – including L1 for projects worth `1,200cr. However, management has
indicated that captive orders would ensure robust order inflow for FY2012. Of the
total order book, hydro projects constitute 45%, irrigation project contribute 40%
and the remaining constitute 15%.
Bottom line declines by staggering 80.2%
During the quarter, operating margin came in at 13.4% (18.8%) adjusting for the
hedging loss, below our estimates, mainly on account of lower revenue growth.
The reported numbers include `50cr as hedging loss in interest cost, which has
been credited to the top line as well. We have considered the same as normal cost
and included it in the total operating expenditure. Therefore, we are excluding the
same from interest cost. The company has claimed that it will be receiving the
same from the client in the next 6–8 months, but we do not expect this to happen.
On the bottom-line front, PEL posted a staggering decline of 80.2% due to dismal
top-line performance. Going ahead as well, we believe recovery to the growth
path will take time, as the order inflow concerns loom large.
Project updates
PEL has invested equity of `250cr in its power ventures, which we have valued at
1x. Land for the first phase (1,050MW plant in Nagapatnam district, Tamil Nadu)
has been acquired and coal linkages are also in place from the Mahanadi coal
fields. Management had earlier expected financial closure by December 2010 and
construction work was likely to start in 2QFY2012. However, pending final
clearance from the Tamil Nadu government to commence construction activity, the
project has witnessed delays and can only be expected in 2HFY2012.
In real estate, management indicated that the progress is satisfactory with
Smondoville-1 completely sold out (total 1,123 apartments), which also implies
that the project does not require cash and would be self funded. During
3QFY2011, PEL booked `13.5cr from real estate from its Smondoville Bangalore
project and PAT of `38lakhs. Phase II and III of Smondoville are 80% sold; and the
company has recently launched Phase IV, which has witnessed good response.
PEL’s Noida project is completely sold out. In Mumbai, PEL has roped in an anchor
tenant for Corporate Tower at `120–130/sq. ft. and completion is likely to be in
18 months.
Outlook and valuation
PEL’s core C&EPC business is currently facing headwinds with its large projects
facing delays and disappointing order inflow. Further, the longer gestation nature
of its order book, macro headwinds and increasing debt levels put the company’s
growth visibility for the next few quarters under doubt. Hence, we are downgrading
our earnings estimates for FY2011 and FY2012 by 50–60%.
Further, PEL has not provided for the recent IT raid (which would accrue in the next
few months), thereby increasing the tax rate going ahead; and the hedging loss
incurred due to project cancellations, which we believe would materialise and
impact its financials (though we have not factored these developments due to
uncertainty). Hence, we are downgrading the stock to Neutral from Buy with a
revised fair value of `220/share (`353/share), given the pressure on C&EPC’s
earnings, muted order inflow, uncertainty over tax outflow and hedging loss.
Our SOTP fair value of `220 is based on a target P/E of 8x (lower than its
historical average and peers to factor in the uncertainty of IT raid and claims with
clients) FY2012E EPS of `14.0 and valuing the company’s investments in real
estate, power and road at `107.5/share.
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