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Revenue and PAT below estimates
Man Infraconstruction’s (MICL) Q3FY11 revenue and PAT were both below our
estimates. Revenue, at INR 1.4 bn (against our estimates of INR 1.9 bn), was
down 4%, both Y-o-Y and Q-o-Q. Also, EBITDA margin came in at 16.7%, down
1430bps Y-o-Y and 200bps Q-o-Q. PAT for the quarter stood at INR 150 mn
(against our estimates of INR 241 mn), down 46% and 17% Y-o-Y and Q-o-Q
respectively. PAT margin, at 10.3%, dipped 800bps Y-o-Y and 150bps Q-o-Q.
Revenue growth and, consequently, profitability was impacted by sand
availability issues in Mumbai. Consequently, direct costs (as a percentage of
sales) rose 150bps Q-o-Q and 1190bps Y-o-Y.
Order intake remains strong
The company’s order book stood at ~INR 20 bn at Q3FY11 end, up from INR 17
bn in Q2FY11. Order intake during the quarter was robust at INR 4.4 bn, mainly
driven by the residential segment. Order book break at the end of Q3FY11 is:
Residential 92%, commercial 5% and infrastructure 3%.
Concerns emerge with regards to the largest client
Of its current order book of ~INR 20 bn, INR 8.5-9.0 bn of projects have been
given by DB Realty. However, one of DB Realty’s co-promoter is currently
undergoing government investigation. Results of this investigation will determine
progress on the discussed projects.
Outlook and valuations: Concerns to remain; downgrade to ‘REDUCE’
We like MICL’s focus on profitable growth and high return ratios. However, client
specific issues are likely to keep alive concerns on the company’s performance.
Also, rising interest rates and liquidity crunch are likely to keep order award from
the realty segment under check. Thus, we are reducing our revenue and PAT
estimates for FY11E by 28% and 35%, respectively. At CMP of INR 140, for
revised fully diluted EPS estimate of INR 13.1 and INR 9.3, MICL is trading at
P/E of 10.6x and 15.0x, for FY11E and FY12E, respectively. We believe the
stock’s performance is likely to be under cloud until clarity emerges on its future
growth. We thus downgrade the stock to ‘REDUCE’ from ‘HOLD’ and rate it
‘Sector Underperformer' on relative return basis.
Company Description
MICL is an infrastructure construction company headquartered in Mumbai. It has
executed projects in Maharashtra, Kerala, Tamil Nadu, Goa, Gujarat and West Bengal,
and is focused on infrastructure and realty sectors.
The company has three subsidiaries – Man Projects (incorporated in July 2007 to focus
on government sector projects like JNPT, CIDCO, etc.), Man Ajwani Infraconstruction
(incorporated in March 2009 to work on public sector projects), and Man Nirmal
Infraconstruction (incorporated during FY10 to execute projects for Nirmal Lifestyle).
Investment Theme
While MICL’s strong relationships with its clients ensure repeat orders for the company,
they could expose it to risks arising from client concentration in the order book. While
the company has indicated that future order intake could diversify its order book, we
believe this could take longer than expected.
MICL’s business model involves working on projects that are mostly awarded as per
negotiations rather than a formal technical and financial bidding process like government
projects (based on ability and pricing). Therefore, margins may vary across projects
(even in same segment), depending on the company’s negotiating ability.
Real estate contracting projects have a shorter execution cycle compared with the typical
infrastructure projects. Since a majority of the company's orders have comparatively
shorter execution period relative to industry standards, a consistent inflow of new orders
is imperative for sustained growth.
Key Risks
Higher than expected order inflows could lead to a pick-up in execution in the future.
Also, faster than expected roll out of its BOT projects can give a boost to income and
profitability.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Revenue and PAT below estimates
Man Infraconstruction’s (MICL) Q3FY11 revenue and PAT were both below our
estimates. Revenue, at INR 1.4 bn (against our estimates of INR 1.9 bn), was
down 4%, both Y-o-Y and Q-o-Q. Also, EBITDA margin came in at 16.7%, down
1430bps Y-o-Y and 200bps Q-o-Q. PAT for the quarter stood at INR 150 mn
(against our estimates of INR 241 mn), down 46% and 17% Y-o-Y and Q-o-Q
respectively. PAT margin, at 10.3%, dipped 800bps Y-o-Y and 150bps Q-o-Q.
Revenue growth and, consequently, profitability was impacted by sand
availability issues in Mumbai. Consequently, direct costs (as a percentage of
sales) rose 150bps Q-o-Q and 1190bps Y-o-Y.
Order intake remains strong
The company’s order book stood at ~INR 20 bn at Q3FY11 end, up from INR 17
bn in Q2FY11. Order intake during the quarter was robust at INR 4.4 bn, mainly
driven by the residential segment. Order book break at the end of Q3FY11 is:
Residential 92%, commercial 5% and infrastructure 3%.
Concerns emerge with regards to the largest client
Of its current order book of ~INR 20 bn, INR 8.5-9.0 bn of projects have been
given by DB Realty. However, one of DB Realty’s co-promoter is currently
undergoing government investigation. Results of this investigation will determine
progress on the discussed projects.
Outlook and valuations: Concerns to remain; downgrade to ‘REDUCE’
We like MICL’s focus on profitable growth and high return ratios. However, client
specific issues are likely to keep alive concerns on the company’s performance.
Also, rising interest rates and liquidity crunch are likely to keep order award from
the realty segment under check. Thus, we are reducing our revenue and PAT
estimates for FY11E by 28% and 35%, respectively. At CMP of INR 140, for
revised fully diluted EPS estimate of INR 13.1 and INR 9.3, MICL is trading at
P/E of 10.6x and 15.0x, for FY11E and FY12E, respectively. We believe the
stock’s performance is likely to be under cloud until clarity emerges on its future
growth. We thus downgrade the stock to ‘REDUCE’ from ‘HOLD’ and rate it
‘Sector Underperformer' on relative return basis.
Company Description
MICL is an infrastructure construction company headquartered in Mumbai. It has
executed projects in Maharashtra, Kerala, Tamil Nadu, Goa, Gujarat and West Bengal,
and is focused on infrastructure and realty sectors.
The company has three subsidiaries – Man Projects (incorporated in July 2007 to focus
on government sector projects like JNPT, CIDCO, etc.), Man Ajwani Infraconstruction
(incorporated in March 2009 to work on public sector projects), and Man Nirmal
Infraconstruction (incorporated during FY10 to execute projects for Nirmal Lifestyle).
Investment Theme
While MICL’s strong relationships with its clients ensure repeat orders for the company,
they could expose it to risks arising from client concentration in the order book. While
the company has indicated that future order intake could diversify its order book, we
believe this could take longer than expected.
MICL’s business model involves working on projects that are mostly awarded as per
negotiations rather than a formal technical and financial bidding process like government
projects (based on ability and pricing). Therefore, margins may vary across projects
(even in same segment), depending on the company’s negotiating ability.
Real estate contracting projects have a shorter execution cycle compared with the typical
infrastructure projects. Since a majority of the company's orders have comparatively
shorter execution period relative to industry standards, a consistent inflow of new orders
is imperative for sustained growth.
Key Risks
Higher than expected order inflows could lead to a pick-up in execution in the future.
Also, faster than expected roll out of its BOT projects can give a boost to income and
profitability.
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