Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Execution in line, but lower OPMs drag profitability
SIL reported an encouraging 9.4% rise in YoY revenues to INR11.7bn in
Q3FY11. The YoY decline in revenues from overseas projects was
further curtailed down to ~46% to INR1.4bn. Even though the OPMs
expanded marginally by 14bps YoY, they were below our expectations
of 9.9% owing majorly to ~11% rise in cost of materials. Consequently,
operating profits for the period rose only by 11% YoY to ~INR1.1bn.
Despite a reasonable operating performance, net profits were flat at
INR232mn due to higher interest charges at INR362mn, +38.2% YoY
(rise in borrowing cost by 110bps during Q3FY11).
Order backlog improves further, bags fresh jobs worth INR30bn
The order backlog as of Jan’11 stood at ~INR148bn (3.1x FY11E
revenues) excluding the potential L1 positions across new jobs worth
INR19.4bn. The company has a bid pipeline for works worth INR440bn
(including overseas bids) - clarity on which should emerge in
subsequent quarters. With the private sector capex gaining
momentum, we expect SIL to easily meet our FY11 order inflow target
of INR80.9bn (bagged INR67bn worth new jobs YTD).
Upgrade to ‘Buy’ buoyed by execution pick up, growth prospects
Despite the disappointment on the earnings front, we derive a higher
level of comfort from the marked pick up in execution across SIL’s
operations in the domestic (+28% YoY) and fast recovering foreign
arena (YoY revenue decline at 46% from 53%). We, however, maintain
our conservative earnings estimates for FY11 and FY12 despite the
management’s guidance of 20-25% YoY growth for FY12.
We strongly believe that SIL's present stock price is largely undervalued
and does not capture the fair value of its extensive execution
capabilities and new business initiatives. A well diversified order book,
state of the art equipment base and a dedicated employee base offer
clear predictability of revenues over the next couple of years. Upgrade
to ‘Buy’
Valuation & Recommendation
Backed by a well diversified order book, providing
earnings visibility till FY13, we expect SIL’s revenues to
grow at a CAGR of ~19% over the period FY11-FY13. The
same should propel its revenues from INR48.2bn in
FY11E to INR68.2bn by FY13. On the operating front, we
expect the company’s margins to hover in the range of
9.8%. Despite higher depreciation charges (capex of
INR4.7bn during FY11-13), net profits should register a
strong CAGR of 27.9%, from ~INR1.3bn in FY11E to
INR2.1bn by FY13.
We have valued the core construction business of the
company on a P/E multiple basis. Owing to an attractive
growth in earnings, high corporate governance and
superior return ratios vis-à-vis similar sized peers, we have
assigned a 11x FY12 earnings multiple to SIL’s core
construction business.
We have used the DCF model for valuing the on-shore
drilling rig business because of the relatively stable cash
flows associated with the same. WACC calculations are
done taking the cost of equity at 13% and cost of debt at
10%. The inherent potential in the real estate business of
the company has not been incorporated in our
valuations owing to the distant earnings visibility.
SIL forayed into the road BOT in FY10 bagging an
INR14bn worth BOOT project in consortium with SREI
and Gulfar Engineering by NHAI. The project is located
on the Bhubaneswar – Chandikol stretch on NH5 and
envisages conversion from the existing 4-lane road into a
6-lane corridor. By virtue of its 26% stake in the SPV, SIL
has an equity commitment of INR777mn towards the
project to be funded over the next two and half years.
The other key details relating to the venture are being
presented below.
Road BOT Details
Details Bhubaneshwar - Chandikol
Location Orissa
Type Toll based
JV partner SREI - 48%, Gulfar - 26%
SIL's share in JV 26%
Project cost (INR mn) 14,000
D:E (x) 3.0
Equity + Grant (INR mn) 5,038
Debt 8,963
SIL's share in Equity 777
Concession period 26 years
Construction period 30 months
Completion date Jun'13
Gross Project NPV 3,468
Expected Equity IRR (%) 19.8%
Source: Company, Elara Securities Estimate
At the CMP of INR335, SIL trades at an adjusted P/E of
8.7x and an EV/EBITDA of 5.3x its FY12 earnings
estimates. Despite continuing disappointment on the
earnings front, we derive an increased level of comfort
from the marked pick up in execution across SIL’s
operations in the domestic (+28% YoY) and fast
recovering foreign arena (YoY revenue decline at 46%
from 53%). We though maintain our conservative
earnings estimates for FY11 and FY12 despite the
management’s guidance of 20-25% YoY growth over the
next few quarters.
We strongly believe that SIL's present stock price is
largely undervalued and does not capture the fair value
of its extensive execution capabilities and new business
initiatives. A well diversified order book, state of the art
equipment base and a dedicated employee base offer
clear predictability of revenues over the next couple of
years. Upgrade to ‘Buy’.
Exhibit 6: Value overview - SIL’s SOTP
Construction Business INR/Share
SIL's FY12E Net Profits (INR mn) 1,742
No. of Shares (SIL Cons.) 50
EPS FY12E 35.1
Assigned P/E multiple (x) 11
Fair Value per Share……..(A) 386
Overseas Subsidiaries
Book Value FY10 (INR mn) 160
Assigned P/B multiple (x) 1.5
Fair Value per Share……..(B) 4.8
Bhubaneshwar Chandikol BOT
Net Present Value (INR mn) 3,468
SIL's equity stake (%) 26
Fair Value per Share……..(C) 18.2
Oil Rig Business
Net Present Value (INR mn) 525
SIL's equity stake (%) 67
Fair Value per Share……..(D) 7.1
SOTP……..(A+B+C+D) 416
CMP (INR) 335
Potential upside (%) 24.2
Source: Elara Securities Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Execution in line, but lower OPMs drag profitability
SIL reported an encouraging 9.4% rise in YoY revenues to INR11.7bn in
Q3FY11. The YoY decline in revenues from overseas projects was
further curtailed down to ~46% to INR1.4bn. Even though the OPMs
expanded marginally by 14bps YoY, they were below our expectations
of 9.9% owing majorly to ~11% rise in cost of materials. Consequently,
operating profits for the period rose only by 11% YoY to ~INR1.1bn.
Despite a reasonable operating performance, net profits were flat at
INR232mn due to higher interest charges at INR362mn, +38.2% YoY
(rise in borrowing cost by 110bps during Q3FY11).
Order backlog improves further, bags fresh jobs worth INR30bn
The order backlog as of Jan’11 stood at ~INR148bn (3.1x FY11E
revenues) excluding the potential L1 positions across new jobs worth
INR19.4bn. The company has a bid pipeline for works worth INR440bn
(including overseas bids) - clarity on which should emerge in
subsequent quarters. With the private sector capex gaining
momentum, we expect SIL to easily meet our FY11 order inflow target
of INR80.9bn (bagged INR67bn worth new jobs YTD).
Upgrade to ‘Buy’ buoyed by execution pick up, growth prospects
Despite the disappointment on the earnings front, we derive a higher
level of comfort from the marked pick up in execution across SIL’s
operations in the domestic (+28% YoY) and fast recovering foreign
arena (YoY revenue decline at 46% from 53%). We, however, maintain
our conservative earnings estimates for FY11 and FY12 despite the
management’s guidance of 20-25% YoY growth for FY12.
We strongly believe that SIL's present stock price is largely undervalued
and does not capture the fair value of its extensive execution
capabilities and new business initiatives. A well diversified order book,
state of the art equipment base and a dedicated employee base offer
clear predictability of revenues over the next couple of years. Upgrade
to ‘Buy’
Valuation & Recommendation
Backed by a well diversified order book, providing
earnings visibility till FY13, we expect SIL’s revenues to
grow at a CAGR of ~19% over the period FY11-FY13. The
same should propel its revenues from INR48.2bn in
FY11E to INR68.2bn by FY13. On the operating front, we
expect the company’s margins to hover in the range of
9.8%. Despite higher depreciation charges (capex of
INR4.7bn during FY11-13), net profits should register a
strong CAGR of 27.9%, from ~INR1.3bn in FY11E to
INR2.1bn by FY13.
We have valued the core construction business of the
company on a P/E multiple basis. Owing to an attractive
growth in earnings, high corporate governance and
superior return ratios vis-à-vis similar sized peers, we have
assigned a 11x FY12 earnings multiple to SIL’s core
construction business.
We have used the DCF model for valuing the on-shore
drilling rig business because of the relatively stable cash
flows associated with the same. WACC calculations are
done taking the cost of equity at 13% and cost of debt at
10%. The inherent potential in the real estate business of
the company has not been incorporated in our
valuations owing to the distant earnings visibility.
SIL forayed into the road BOT in FY10 bagging an
INR14bn worth BOOT project in consortium with SREI
and Gulfar Engineering by NHAI. The project is located
on the Bhubaneswar – Chandikol stretch on NH5 and
envisages conversion from the existing 4-lane road into a
6-lane corridor. By virtue of its 26% stake in the SPV, SIL
has an equity commitment of INR777mn towards the
project to be funded over the next two and half years.
The other key details relating to the venture are being
presented below.
Road BOT Details
Details Bhubaneshwar - Chandikol
Location Orissa
Type Toll based
JV partner SREI - 48%, Gulfar - 26%
SIL's share in JV 26%
Project cost (INR mn) 14,000
D:E (x) 3.0
Equity + Grant (INR mn) 5,038
Debt 8,963
SIL's share in Equity 777
Concession period 26 years
Construction period 30 months
Completion date Jun'13
Gross Project NPV 3,468
Expected Equity IRR (%) 19.8%
Source: Company, Elara Securities Estimate
At the CMP of INR335, SIL trades at an adjusted P/E of
8.7x and an EV/EBITDA of 5.3x its FY12 earnings
estimates. Despite continuing disappointment on the
earnings front, we derive an increased level of comfort
from the marked pick up in execution across SIL’s
operations in the domestic (+28% YoY) and fast
recovering foreign arena (YoY revenue decline at 46%
from 53%). We though maintain our conservative
earnings estimates for FY11 and FY12 despite the
management’s guidance of 20-25% YoY growth over the
next few quarters.
We strongly believe that SIL's present stock price is
largely undervalued and does not capture the fair value
of its extensive execution capabilities and new business
initiatives. A well diversified order book, state of the art
equipment base and a dedicated employee base offer
clear predictability of revenues over the next couple of
years. Upgrade to ‘Buy’.
Exhibit 6: Value overview - SIL’s SOTP
Construction Business INR/Share
SIL's FY12E Net Profits (INR mn) 1,742
No. of Shares (SIL Cons.) 50
EPS FY12E 35.1
Assigned P/E multiple (x) 11
Fair Value per Share……..(A) 386
Overseas Subsidiaries
Book Value FY10 (INR mn) 160
Assigned P/B multiple (x) 1.5
Fair Value per Share……..(B) 4.8
Bhubaneshwar Chandikol BOT
Net Present Value (INR mn) 3,468
SIL's equity stake (%) 26
Fair Value per Share……..(C) 18.2
Oil Rig Business
Net Present Value (INR mn) 525
SIL's equity stake (%) 67
Fair Value per Share……..(D) 7.1
SOTP……..(A+B+C+D) 416
CMP (INR) 335
Potential upside (%) 24.2
Source: Elara Securities Research
No comments:
Post a Comment