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Revenue and PAT ahead of estimates
BL Kashyap & Sons’ (BLK) Q3FY11 result was ahead of estimates on both the top
line and bottom line fronts. Revenue, at INR 4.4 bn, grew 60% Y-o-Y and 41%
Q-o-Q. EBITDA margins, however, came in below our estimate, at 7.9%, down
50ps Y-o-Y, but up 30bps Q-o-Q. The improvement in working capital cycle
continued which enabled the company manage its interest costs despite increase
in interest rates; as a result, PAT margin came in at 3.4% (down 50bps Y-o-Y),
largely mirroring the decline in EBITDA margin.
Robust order accretion
The company continued the trend of strong order intake during the quarter. It
won INR 7 bn of fresh orders during the October-January period; YTD, order
inflows have exceeded INR 30 bn (INR 16.2 bn in FY10). The company’s current
order book stands at ~INR 44 bn (INR 40 bn at Q2FY10 end). The order book
break up is 35% residential, 30% government, 10% hospitality, 7% industrial
and the balance comes from commercial/IT/end user. Order book/ TTM (trailing
12 months) revenue, at ~3.5x, is robust and provides revenue visibility.
Steady progress in real estate development projects
BLK’s three Bengaluru retail projects are on track. While it expects to start
operations in one project by April 2011, the other two projects are expected to
start in June and December 2011, respectively.
Revisiting our FY12 estimates
We have revised down our FY12 revenue and PAT estimates by 12% and 25%,
respectively. This is due to the ongoing liquidity crunch in the reality space which
we expect will keep a lid on EBITDA margin expansion, as well as keep revenue
growth in check.
Outlook and valuations: Attractive; maintain ‘BUY’
With a robust order book, BLK is poised to grow strongly going ahead. We have
calibrated our estimates keeping in mind 9mFY11 performance. At CMP of
INR 23 for revised estimates, the stock is trading at 9.0x and 8.4x FY11E and
FY12E, respectively, on P/E basis. Any value arising from development or
outright sale of its realty projects will provide upsides to our estimates and be a
positive trigger for the stock. We find the company’s long-term growth prospects
attractive and maintain our ‘BUY’ recommendation. We rate it ’Sector
Outperformer’ on relative return basis.
Focus on government sector
BLK is looking to increase the share of the govt space in order inflow going ahead. We
believe this is a prudent step which will enable BLK to avoid the uncertainties associated
with real estate developers in a rising interest rates and liquidity crunch scenario. Most
recent order wins have been in the commercial segment with healthy contribution from
the corporate (end user) segment.
Company Description
BLK is focused on civil/industrial construction, design and building of turnkey projects,
and interior and furnishing work. It primarily caters to the northern and southern
markets in India and is now building its presence in other markets too. The company has
two subsidiaries in the furnishings and real estate development space, BLK Lifestyle, and
Soul Space Projects, respectively. These subsidiaries have helped BLK transform itself
into a comprehensive one-stop solution provider for office buildings and residential
complexes. The subsidiary operations are gathering steam, helping BLK diversify its
business model.
Investment Theme
We maintain our positive outlook on BLK as a significant player in the urban
infrastructure space with a reputation for delivering high-quality structures in the
commercial, residential, and industrial arena on or ahead of time. Its high-growth, lowrisk
strategy of faster project execution, coupled with its presence in low capital
intensive, high margin value-added product segment is likely to enable it to sustain its
growth momentum in future. Its real estate subsidiary is following a strategy of
developing projects on its own land bank as well as through joint development
mechanisms. This strategy will help the company keeping its balance sheet risk profile in
check, while providing opportunities to foray into real estate development space. In
addition, its furnishing subsidiary provides end-to-end solutions to BLK’s existing building
contracting solutions portfolio. Given the huge growth in residential construction, this
strategy of providing value-added housing solutions boosts margins.
Key Risks
A slowdown in the real estate cycle may lead to slowdown in project ramp-ups, affecting
BLK’s order intake and revenue growth. This assumes more significance now with the
ramp-up in operations of its real estate subsidiary.
A slowdown in the pace of orders could reduce the pricing power of players like BLK,
putting pressure on the profitability. Also, since a majority of the company's orders have
a comparatively shorter execution period relative to the industry standards, a consistent
inflow of new orders is imperative for sustained growth.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Revenue and PAT ahead of estimates
BL Kashyap & Sons’ (BLK) Q3FY11 result was ahead of estimates on both the top
line and bottom line fronts. Revenue, at INR 4.4 bn, grew 60% Y-o-Y and 41%
Q-o-Q. EBITDA margins, however, came in below our estimate, at 7.9%, down
50ps Y-o-Y, but up 30bps Q-o-Q. The improvement in working capital cycle
continued which enabled the company manage its interest costs despite increase
in interest rates; as a result, PAT margin came in at 3.4% (down 50bps Y-o-Y),
largely mirroring the decline in EBITDA margin.
Robust order accretion
The company continued the trend of strong order intake during the quarter. It
won INR 7 bn of fresh orders during the October-January period; YTD, order
inflows have exceeded INR 30 bn (INR 16.2 bn in FY10). The company’s current
order book stands at ~INR 44 bn (INR 40 bn at Q2FY10 end). The order book
break up is 35% residential, 30% government, 10% hospitality, 7% industrial
and the balance comes from commercial/IT/end user. Order book/ TTM (trailing
12 months) revenue, at ~3.5x, is robust and provides revenue visibility.
Steady progress in real estate development projects
BLK’s three Bengaluru retail projects are on track. While it expects to start
operations in one project by April 2011, the other two projects are expected to
start in June and December 2011, respectively.
Revisiting our FY12 estimates
We have revised down our FY12 revenue and PAT estimates by 12% and 25%,
respectively. This is due to the ongoing liquidity crunch in the reality space which
we expect will keep a lid on EBITDA margin expansion, as well as keep revenue
growth in check.
Outlook and valuations: Attractive; maintain ‘BUY’
With a robust order book, BLK is poised to grow strongly going ahead. We have
calibrated our estimates keeping in mind 9mFY11 performance. At CMP of
INR 23 for revised estimates, the stock is trading at 9.0x and 8.4x FY11E and
FY12E, respectively, on P/E basis. Any value arising from development or
outright sale of its realty projects will provide upsides to our estimates and be a
positive trigger for the stock. We find the company’s long-term growth prospects
attractive and maintain our ‘BUY’ recommendation. We rate it ’Sector
Outperformer’ on relative return basis.
Focus on government sector
BLK is looking to increase the share of the govt space in order inflow going ahead. We
believe this is a prudent step which will enable BLK to avoid the uncertainties associated
with real estate developers in a rising interest rates and liquidity crunch scenario. Most
recent order wins have been in the commercial segment with healthy contribution from
the corporate (end user) segment.
Company Description
BLK is focused on civil/industrial construction, design and building of turnkey projects,
and interior and furnishing work. It primarily caters to the northern and southern
markets in India and is now building its presence in other markets too. The company has
two subsidiaries in the furnishings and real estate development space, BLK Lifestyle, and
Soul Space Projects, respectively. These subsidiaries have helped BLK transform itself
into a comprehensive one-stop solution provider for office buildings and residential
complexes. The subsidiary operations are gathering steam, helping BLK diversify its
business model.
Investment Theme
We maintain our positive outlook on BLK as a significant player in the urban
infrastructure space with a reputation for delivering high-quality structures in the
commercial, residential, and industrial arena on or ahead of time. Its high-growth, lowrisk
strategy of faster project execution, coupled with its presence in low capital
intensive, high margin value-added product segment is likely to enable it to sustain its
growth momentum in future. Its real estate subsidiary is following a strategy of
developing projects on its own land bank as well as through joint development
mechanisms. This strategy will help the company keeping its balance sheet risk profile in
check, while providing opportunities to foray into real estate development space. In
addition, its furnishing subsidiary provides end-to-end solutions to BLK’s existing building
contracting solutions portfolio. Given the huge growth in residential construction, this
strategy of providing value-added housing solutions boosts margins.
Key Risks
A slowdown in the real estate cycle may lead to slowdown in project ramp-ups, affecting
BLK’s order intake and revenue growth. This assumes more significance now with the
ramp-up in operations of its real estate subsidiary.
A slowdown in the pace of orders could reduce the pricing power of players like BLK,
putting pressure on the profitability. Also, since a majority of the company's orders have
a comparatively shorter execution period relative to the industry standards, a consistent
inflow of new orders is imperative for sustained growth.
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