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Result highlights
Net sales up 15%, below estimates: In Q3FY2011 the stand-alone revenue of
Gayatri Projects Ltd (GPL) grew by 15% year on year (YoY) to Rs384 crore,
which was below our expectation. The top line growth during the quarter was
subdued due to an extended monsoon in October.
Better operating margin: The operating profit margin (OPM) expanded by 162
basis points YoY to 13.9% on account of revenue booking in case of its high
margin power project. The management expects to sustain the margin around
13%, as the proportion of power orders increases in its overall order book. Due
to better margins, the earnings before interest, tax, depreciation and
amortization (EBITDA) for the quarter grew 30% YoY.
Net profit growth at 15%, in line with estimates: The net profit for Q3FY2011
grew by just 15.5% YoY to Rs17.7 crore (in line with estimates) despite a 30%
growth in EBITDA. A sharp jump in interest costs due to hardening of interest
rates and higher debt level limited the growth.
Update on its power portfolio: Gayatri Energy Ventures (GEVL), the holding
company for all power projects of GPL, has received the first tranche of money
of Rs364 crore from Sembcorp for its Krishnapatnam power project in Andhra
Pradesh (AP) wherein the latter had purchased a 49% stake for Rs1,100 crore.
Further GEVL also plans to set up two more power plants in AP and Maharashtra.
It is setting up a 1320MW power plant in Nellore, AP
along with NCC wherein it holds a 45% stake and a
660MW power plant in the Yawatmal dstrict of
Maharashtra where it has a 50% stake. GPL has invested
Rs420 crore so far in all the three projects combined.
In addition it has raised Rs250 crore of NCD from IFCI
at GEVL level to invest further in these power projects.
It is also looking to raise ~Rs400 crore at GEVL level by
diluting its 10-15% stake to private equity which can
be used to invest in the power projects.
Rights issue planned: GPL plans to raise upto Rs400
crore via a rights issue in order to fund its power
projects. Assuming it raises Rs200 crore at the current
market price, the dilution will be to the extent of 90%
which has been factored into our model.
Change in estimates: We are lowering our net profit
estimates for FY2011 and FY2012 by 7% and 4%
respectively to factor in a higher interest burden.
Attractive valuations: The present order book of the
company, even excluding the irrigation projects,
provides a strong revenue visibility. Further the buildoperate
transfer (BOT) holding company Gayatri
Infrastructure Ventures (GIVL) will no longer depend
on the parent company for further investments as five
of its seven road BOT projects would get operational
this fiscal which can be securitized and the funds raised
thereby can be reinvested in new projects. GPL is also
scaling up its power portfolio from 1,320MW to
3,300MW. Thus it is clearly moving its focus more
towards the developer space. At the current market
price, the stock is trading at 4.6x and 5.7x its FY2011E
and FY2012E diluted earnings respectively making the
valuations attractive given the company’s growth
plans. Further, the stock has corrected 38% over the
past three months and is trading even below 1x (0.9x)
its FY2010 book value (BV); thus providing a good
investment opportunity here on. We revise our target
price to Rs412 and maintain our Buy recommendation
on the stock.
Healthy order book despite excluding AP irrigation
projects
The current order book of the company stands at around
Rs8,000 crore, 6.4x its FY2010 revenues, as 40% of the
order book is still exposed to the irrigation projects in AP
where the execution is very slow. These irrigation orders
were largely won in FY2009. The situation in AP has still
not improved and clarity is not emerging on the front.
Hence, the pace of execution continues to be slow and
the same is expected to pick up only after the emergence
of political stability in the state.
Thus, if we remove the whole of irrigation projects from
the company’s present order book, the order book will
be ~Rs4,870 crore, which is 3.9x its FY2010 revenues,
which still provides good revenue visibility.
GIVL, the holding subsidiary of BOT projects—no
more dependent on parent company for funding
GIVL, the holding company of all the BOT projects of GPL
will not require any further investment from the parent
company. The company currently has a portfolio of seven
road BOT projects. Of these, five are expected to become
operational in FY2011. GPL has received the provisional
completion certificate for three of its five projects with
the balance two expected to receive the certificate in
March 2011. Of the remaining two newly won projects,
one has achieved financial closure and another is expected
to achieve it in Q4FY2011.
Once these five projects become operational, GPL will
look at securitising these projects at special purpose
vehicle (SPV) level. Further it has raised Rs135 crore in
the form of NCD from IL&FS at the GIVL level. Thus any
further investment in any new project including the two
projects in the development stage will be met through
this NCD and securitization. Hence GPL will not be
required to invest any further in GIVL.
Expanding its power portfolio
GEVL, the holding company of power projects of GPL is
setting up a 1,320MW power plant in Krishnapatnam, AP.
It has received the first tranche of money of Rs364 crore
from Sembcorp, which had earlier purchased a 49% stake
in the project for Rs1,100 crore. Construction work is
moving as per schedule and the plant is expected to be
operational in three years.
GEVL recently announced its plan of further setting up
two more power plants in AP and Maharashtra. It is setting
up a 1,320MW power plant in Nellore, AP along with NCC
wherein it holds a 45% stake. It is also setting up a 660MW
power plant in the Yawatmal dstrict of Maharashtra where
it has a 50% stake.
GPL has invested Rs420 crore so far in all the three
projects combined. Further it has raised Rs250 crore of
NCD from IFCI at GEVL level to invest further in these
power projects. It is also looking to raise ~Rs400 crore at
GEVL level by diluting its 10-15% stake to private equity
which can be used to invest in the power projects. GPL
will also reinvest the margins earned on the EPC work
from these projects. Thus our analysis shows that GPL
will further require to invest only Rs340 crore in these
three projects over a period of three years.
Funding plans for its power portfolio
Particulars Rs (crore)
GPL's total share of investment
Krishnapatnam, AP 618
Nellore, AP 810
Yawatmal, Maharastra 438
Total 1866
GPL - Invested so far 420
Balance yet to be invested 1446
Sources
IFCI NCD 250
PE deal 400
EPC + BoP work 454
Total 1104
Further investment required from parents 341
Balance sheet over next 2-3 years
Plans a rights issue—will help meet its investment
needs
GPL plans to raise upto Rs400 crore via a rights issue in
order to fund its power projects. Assuming it raises Rs200
crore at the current market price, the dilution will be to
the extent of 90% which has been factored into our model.
Valuation
We are lowering our net profit estimates for FY2011 and
FY2012 by 7% and 4% respectively to factor in a higher
interest burden.
The present order book of the company, even excluding
the irrigation projects, provides a strong revenue visibility.
Further the BOT holding company GIVL will no longer
depend on the parent company for further investments
as five of its seven road BOT projects would get
operational this fiscal which can be securitized and the
funds raised thereby can be reinvested in new projects.
GPL is also scaling up its power portfolio from 1,320MW
to 3,300MW. Thus it is clearly moving its focus more
towards the developer space. At the current market price,
the stock is trading at 4.6x and 5.7x its FY2011E and
FY2012E diluted earnings respectively making the
valuations attractive given the company’s growth plans.
Further, the stock has corrected 38% over the past three
months and is trading even below 1x (0.9x) its FY2010
BV; thus providing a good investment opportunity here
on. We revise our target price to Rs412 and maintain our
Buy recommendation on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Result highlights
Net sales up 15%, below estimates: In Q3FY2011 the stand-alone revenue of
Gayatri Projects Ltd (GPL) grew by 15% year on year (YoY) to Rs384 crore,
which was below our expectation. The top line growth during the quarter was
subdued due to an extended monsoon in October.
Better operating margin: The operating profit margin (OPM) expanded by 162
basis points YoY to 13.9% on account of revenue booking in case of its high
margin power project. The management expects to sustain the margin around
13%, as the proportion of power orders increases in its overall order book. Due
to better margins, the earnings before interest, tax, depreciation and
amortization (EBITDA) for the quarter grew 30% YoY.
Net profit growth at 15%, in line with estimates: The net profit for Q3FY2011
grew by just 15.5% YoY to Rs17.7 crore (in line with estimates) despite a 30%
growth in EBITDA. A sharp jump in interest costs due to hardening of interest
rates and higher debt level limited the growth.
Update on its power portfolio: Gayatri Energy Ventures (GEVL), the holding
company for all power projects of GPL, has received the first tranche of money
of Rs364 crore from Sembcorp for its Krishnapatnam power project in Andhra
Pradesh (AP) wherein the latter had purchased a 49% stake for Rs1,100 crore.
Further GEVL also plans to set up two more power plants in AP and Maharashtra.
It is setting up a 1320MW power plant in Nellore, AP
along with NCC wherein it holds a 45% stake and a
660MW power plant in the Yawatmal dstrict of
Maharashtra where it has a 50% stake. GPL has invested
Rs420 crore so far in all the three projects combined.
In addition it has raised Rs250 crore of NCD from IFCI
at GEVL level to invest further in these power projects.
It is also looking to raise ~Rs400 crore at GEVL level by
diluting its 10-15% stake to private equity which can
be used to invest in the power projects.
Rights issue planned: GPL plans to raise upto Rs400
crore via a rights issue in order to fund its power
projects. Assuming it raises Rs200 crore at the current
market price, the dilution will be to the extent of 90%
which has been factored into our model.
Change in estimates: We are lowering our net profit
estimates for FY2011 and FY2012 by 7% and 4%
respectively to factor in a higher interest burden.
Attractive valuations: The present order book of the
company, even excluding the irrigation projects,
provides a strong revenue visibility. Further the buildoperate
transfer (BOT) holding company Gayatri
Infrastructure Ventures (GIVL) will no longer depend
on the parent company for further investments as five
of its seven road BOT projects would get operational
this fiscal which can be securitized and the funds raised
thereby can be reinvested in new projects. GPL is also
scaling up its power portfolio from 1,320MW to
3,300MW. Thus it is clearly moving its focus more
towards the developer space. At the current market
price, the stock is trading at 4.6x and 5.7x its FY2011E
and FY2012E diluted earnings respectively making the
valuations attractive given the company’s growth
plans. Further, the stock has corrected 38% over the
past three months and is trading even below 1x (0.9x)
its FY2010 book value (BV); thus providing a good
investment opportunity here on. We revise our target
price to Rs412 and maintain our Buy recommendation
on the stock.
Healthy order book despite excluding AP irrigation
projects
The current order book of the company stands at around
Rs8,000 crore, 6.4x its FY2010 revenues, as 40% of the
order book is still exposed to the irrigation projects in AP
where the execution is very slow. These irrigation orders
were largely won in FY2009. The situation in AP has still
not improved and clarity is not emerging on the front.
Hence, the pace of execution continues to be slow and
the same is expected to pick up only after the emergence
of political stability in the state.
Thus, if we remove the whole of irrigation projects from
the company’s present order book, the order book will
be ~Rs4,870 crore, which is 3.9x its FY2010 revenues,
which still provides good revenue visibility.
GIVL, the holding subsidiary of BOT projects—no
more dependent on parent company for funding
GIVL, the holding company of all the BOT projects of GPL
will not require any further investment from the parent
company. The company currently has a portfolio of seven
road BOT projects. Of these, five are expected to become
operational in FY2011. GPL has received the provisional
completion certificate for three of its five projects with
the balance two expected to receive the certificate in
March 2011. Of the remaining two newly won projects,
one has achieved financial closure and another is expected
to achieve it in Q4FY2011.
Once these five projects become operational, GPL will
look at securitising these projects at special purpose
vehicle (SPV) level. Further it has raised Rs135 crore in
the form of NCD from IL&FS at the GIVL level. Thus any
further investment in any new project including the two
projects in the development stage will be met through
this NCD and securitization. Hence GPL will not be
required to invest any further in GIVL.
Expanding its power portfolio
GEVL, the holding company of power projects of GPL is
setting up a 1,320MW power plant in Krishnapatnam, AP.
It has received the first tranche of money of Rs364 crore
from Sembcorp, which had earlier purchased a 49% stake
in the project for Rs1,100 crore. Construction work is
moving as per schedule and the plant is expected to be
operational in three years.
GEVL recently announced its plan of further setting up
two more power plants in AP and Maharashtra. It is setting
up a 1,320MW power plant in Nellore, AP along with NCC
wherein it holds a 45% stake. It is also setting up a 660MW
power plant in the Yawatmal dstrict of Maharashtra where
it has a 50% stake.
GPL has invested Rs420 crore so far in all the three
projects combined. Further it has raised Rs250 crore of
NCD from IFCI at GEVL level to invest further in these
power projects. It is also looking to raise ~Rs400 crore at
GEVL level by diluting its 10-15% stake to private equity
which can be used to invest in the power projects. GPL
will also reinvest the margins earned on the EPC work
from these projects. Thus our analysis shows that GPL
will further require to invest only Rs340 crore in these
three projects over a period of three years.
Funding plans for its power portfolio
Particulars Rs (crore)
GPL's total share of investment
Krishnapatnam, AP 618
Nellore, AP 810
Yawatmal, Maharastra 438
Total 1866
GPL - Invested so far 420
Balance yet to be invested 1446
Sources
IFCI NCD 250
PE deal 400
EPC + BoP work 454
Total 1104
Further investment required from parents 341
Balance sheet over next 2-3 years
Plans a rights issue—will help meet its investment
needs
GPL plans to raise upto Rs400 crore via a rights issue in
order to fund its power projects. Assuming it raises Rs200
crore at the current market price, the dilution will be to
the extent of 90% which has been factored into our model.
Valuation
We are lowering our net profit estimates for FY2011 and
FY2012 by 7% and 4% respectively to factor in a higher
interest burden.
The present order book of the company, even excluding
the irrigation projects, provides a strong revenue visibility.
Further the BOT holding company GIVL will no longer
depend on the parent company for further investments
as five of its seven road BOT projects would get
operational this fiscal which can be securitized and the
funds raised thereby can be reinvested in new projects.
GPL is also scaling up its power portfolio from 1,320MW
to 3,300MW. Thus it is clearly moving its focus more
towards the developer space. At the current market price,
the stock is trading at 4.6x and 5.7x its FY2011E and
FY2012E diluted earnings respectively making the
valuations attractive given the company’s growth plans.
Further, the stock has corrected 38% over the past three
months and is trading even below 1x (0.9x) its FY2010
BV; thus providing a good investment opportunity here
on. We revise our target price to Rs412 and maintain our
Buy recommendation on the stock.
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