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Revenue below our estimates, PAT in line; FY11 guidance maintained
While Jyoti Structures’ (JSL) Q3FY11 revenue was below our and consensus’
estimates, PAT came in line. The transmission business segment contributed 72%,
substations 7% and rural electrification the balance, to sales. However, the
company maintained its FY11 guidance of INR 24 bn, implying revenue growth of
~40% in Q4FY11E. Both revenue and PAT growth remained subdued at 7.7% and
6% Y-o-Y, respectively. EBIDTA Margins for the company declined marginally by
20 bps due to lower sales growth.
Tepid growth in order inflow
JSL reported 63% Y-o-Y decline in order accretion to INR 4.2 bn during Q3FY11.
For 9mFY11, order inflow declined 13.7%, to INR 16.4 bn. Order backlog stood
at INR 41 bn (1.7x FY11E revenues), implying flat order book growth. The
transmission segment continued to dominate the order book at 80%, while
substation and rural electrification made up 5% and 15%, respectively. The
management expects 4QFY11 to be strong in terms of new order intake, given
strong awards expected by PGCIL in the next 4-6 weeks.
Fund raising clarity
JSL plans to raise INR 3.7 bn (25% dilution) through non-convertible debentures
(NCDs) and rights issue. While the objective of NCDs is to get an arbitrage on
differential interest rate, rights issue is targeted at meeting the long-term working
capital requirement. We have not factored impact of NCDs and warrants in our
FY12E earnings estimates.
Outlook and valuations: Declining earnings visibility; maintain ‘HOLD’
With around 86% of the current order book coming from the domestic market,
JSL is largely protected from any sharp variations in the steel prices. However, we
believe huge exposure to domestic market leaves it susceptible to domestic order
cycles and slow down. We prefer KEC international in the T&D EPC space given its
diversified geographical presence in key export regions. JSL currently trades at a
PE of 8.5 x & 7.4x on FY11E & FY12E basis basis, respectively, we maintain our
‘HOLD/SP’ rating for the stock.
Company Description
Incorporated in 1975, JYS is a leading turnkey/EPC player, providing solutions in the field
of high-voltage power transmission lines and substations. The company has positioned
itself uniquely to pre-qualify for transmission lines of up to 800 KV, substations of up to
400 KV, and distribution projects. JYS is amongst the very few companies in the world,
capable of executing turnkey jobs that involve setting up both transmission lines and
substations. The company has three business segments—power transmission towers,
rural electrification, and substations. Power transmission contributes ~65%, substations
~20%, and rural electrification the balance, to revenues.
Investment Theme
India’s inter-regional power transmission capacity is likely to increase from ~20,750 MW
currently to ~37,150 MW at the end of the Eleventh Plan (FY12-end). Further, we expect
an investment of ~INR 1,400 bn for expansion of the transmission infrastructure during
the Eleventh Plan. While we remain bullish on the long-term prospects of the industry,
we believe, possibility of slowdown in orders over the medium term cannot be ruled out.
We expect JYS to report robust revenue growth numbers in FY11E, and believe coolingoff
of commodity prices will ease pressures on margins.
Key Risks
Slowdown in capex by PGCIL could impact order accretion for the company, thereby
impacting our FY11E and FY12E estimates. Further rise in interest rate, could impact
company’s PAT margins, going forward.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Revenue below our estimates, PAT in line; FY11 guidance maintained
While Jyoti Structures’ (JSL) Q3FY11 revenue was below our and consensus’
estimates, PAT came in line. The transmission business segment contributed 72%,
substations 7% and rural electrification the balance, to sales. However, the
company maintained its FY11 guidance of INR 24 bn, implying revenue growth of
~40% in Q4FY11E. Both revenue and PAT growth remained subdued at 7.7% and
6% Y-o-Y, respectively. EBIDTA Margins for the company declined marginally by
20 bps due to lower sales growth.
Tepid growth in order inflow
JSL reported 63% Y-o-Y decline in order accretion to INR 4.2 bn during Q3FY11.
For 9mFY11, order inflow declined 13.7%, to INR 16.4 bn. Order backlog stood
at INR 41 bn (1.7x FY11E revenues), implying flat order book growth. The
transmission segment continued to dominate the order book at 80%, while
substation and rural electrification made up 5% and 15%, respectively. The
management expects 4QFY11 to be strong in terms of new order intake, given
strong awards expected by PGCIL in the next 4-6 weeks.
Fund raising clarity
JSL plans to raise INR 3.7 bn (25% dilution) through non-convertible debentures
(NCDs) and rights issue. While the objective of NCDs is to get an arbitrage on
differential interest rate, rights issue is targeted at meeting the long-term working
capital requirement. We have not factored impact of NCDs and warrants in our
FY12E earnings estimates.
Outlook and valuations: Declining earnings visibility; maintain ‘HOLD’
With around 86% of the current order book coming from the domestic market,
JSL is largely protected from any sharp variations in the steel prices. However, we
believe huge exposure to domestic market leaves it susceptible to domestic order
cycles and slow down. We prefer KEC international in the T&D EPC space given its
diversified geographical presence in key export regions. JSL currently trades at a
PE of 8.5 x & 7.4x on FY11E & FY12E basis basis, respectively, we maintain our
‘HOLD/SP’ rating for the stock.
Company Description
Incorporated in 1975, JYS is a leading turnkey/EPC player, providing solutions in the field
of high-voltage power transmission lines and substations. The company has positioned
itself uniquely to pre-qualify for transmission lines of up to 800 KV, substations of up to
400 KV, and distribution projects. JYS is amongst the very few companies in the world,
capable of executing turnkey jobs that involve setting up both transmission lines and
substations. The company has three business segments—power transmission towers,
rural electrification, and substations. Power transmission contributes ~65%, substations
~20%, and rural electrification the balance, to revenues.
Investment Theme
India’s inter-regional power transmission capacity is likely to increase from ~20,750 MW
currently to ~37,150 MW at the end of the Eleventh Plan (FY12-end). Further, we expect
an investment of ~INR 1,400 bn for expansion of the transmission infrastructure during
the Eleventh Plan. While we remain bullish on the long-term prospects of the industry,
we believe, possibility of slowdown in orders over the medium term cannot be ruled out.
We expect JYS to report robust revenue growth numbers in FY11E, and believe coolingoff
of commodity prices will ease pressures on margins.
Key Risks
Slowdown in capex by PGCIL could impact order accretion for the company, thereby
impacting our FY11E and FY12E estimates. Further rise in interest rate, could impact
company’s PAT margins, going forward.
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