Jyoti Structures- Attractive valuations; initiate with Buy: Anand Rathi

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Jyoti Structures
Attractive valuations; initiate with Buy
We initiate coverage on Jyoti Structures with a Buy
recommendation and a target price of `157/share. We like Jyoti
owing to its healthy order backlog, consistent order inflows,
steady earnings profile and attractive valuations. Our target price
is based on 12x FY12e earnings.

 Key player in T&D. Jyoti has remained a prominent player in the
Indian T&D sector for over three decades. Its order book has
grown 5x over the past five years. Further, it operates in the
Middle East and Africa through a JV with Gulf Investment
Corporation (GIC) and in conjunction with local partners
respectively. Jyoti also plans to foray the American markets.
 Healthy order backlog; consistent order inflows. Jyoti’s
unexecuted orders stood at `42.5bn (including L1 orders of
`3.5bn) as of end-Sep ’10 which is 2.1x FY10 sales, thereby
assuring revenue in the medium term. Order inflows have been
consistent, with `12bn worth of orders secured in 1HFY11.
PowerGrid accounts for 28% of the backlog, private orders form
14% and the balance 58% comprise orders from state utilities. We
estimate order inflows of `14bn in 2HFY11.
 Valuation and risks. We expect earnings CAGR of 16% over
FY10-13e. The stock trades at >30% discount to its 5-year average
PE multiple of 13-14x one-year-forward earnings. We value Jyoti
based on 12x FY12e earnings with price target of `157. Key risks:
execution delay; rising commodity prices and interest rates; poor
performance of international business; prolonged competition.