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DIAMOND POWER INFRASTRUCTURE LTD
RECOMMENDATION: BUY
TARGET PRICE: RS.264
FY12E P/E: 4.4X
q Order booking in the current quarter has been strong in conductors but
the EPC segment has been a laggard. Management believes that prices
quoted by competitors are unremunerative and in view of this it has preferred
to be conservative in order booking.
q The company's transmission tower plant has started commercial production.
However, it does not have any external orders and currently it is
doing job-work for captive orders. The company is discussing tower supply
orders with customers. EHV cables plant is expected to get commissioned
in May 2011.
q In view of the delay in new production facilities (EHV cables and Transmission
Towers), we have revised our earnings estimates downwards.
Consequently, our DCF based target price stands revised to Rs 264 (Rs 319
earlier). Maintain BUY.
Continued momentum in order intake
Order intake from state as well as private utilities has been healthy during the quarter.
Amidst concerns that order intake is slowing down, the company has won orders
worth over Rs 2.6 bn in the current quarter. In addition to this, the company is expecting
Rs 1.0 bn order for 3600 kms for which it has already received Letter Of
Intent. This order is expected before the end of current fiscal. In the distribution conductor
side, the company has been selected by TNEB for supply of 36500 kms of
distribution conductor worth Rs 750 mn.
Order book position is healthy
Order book of the company stands at Rs 16.5 bn providing a revenue visibility of
13.7 months. Order intake in the conductor segment has been healthy but the EPC
segment has been a laggard given aggressive prices quoted by competitors. Consequently,
the company has preferred to take a conservative approach in bidding for
EPC projects.
The cables business consists of short-cycle products with delivery period between 1-
3 months and hence is not essentially a order-book driven segment. The company
prefers to maintain 4-6 months of order backlog in this segment.
Update on capacity additions
The company recently commenced commercial operation of 50000 tpa transmission
towers facility. However, it has not received any external order for transmission towers
so far and is currently mainly doing jobwork for captive projects. The company is
in talks with transmission tower EPC players for tower supply arrangements.
So far as the EHV cables plant is concerned, the company expects to commission
this plant in May 2011. Since the EHV cable manufacturing has some level of technically
sophistication, the company would require technical approvals for reputed
agencies. The company indicated that for 400 KV and above there is a long-approval
and testing process of close to six months. Hence in the immediate term, the
company plans to run operations for making 150-200 kv cable orders for which approval
process is not time-consuming.
In the initial stage, the management has estimated revenue run-rate of Rs 110-120
mn per month from the EHV cables plant. We expect meaningful contribution from
the EHV cables and transmission towers to come from FY13 onwards.
Tax shield from Apex Transformers may limit tax rate in FY12
The company's subsidiary Apex Transformers (which was under BIFR) has commenced
manufacturing of transformers in current fiscal. Apex has a capacity of
12500 MVA of power transformer and reported Rs 200 mn revenues in Q3 FY11.
Apex has accumulated losses of Rs 1.8 bn, which is expected to provide tax shield to
the company.
Substantially strengthened balance sheet
Following the equity infusion through QIP and warrant conversion, the company has
a much improved balance sheet. Its debt-equity ratio stood at 1.1x at the end of
FY10, which has declined to 0.6x as of 9M FY11. The company has also optimized
its cost of borrowings by replacing high cost debt.
Earnings Revision
In view of the delay in transmission towers and EHV cables plant, we have reduced
our revenue estimates for FY12.
Further, we have adjusted EBITDA margins downwards in view of the rise in material
prices.
Stock attractively valued at 4.4x FY12 earnings
Diamond Power Infrastruture stock has been derated in the past few months despite
reporting strong earnings during the year. At the current price, the stock is trading at
4.7x and 4.4x FY11E and FY12E earnings respectively. On an FY11 EV/EBITDA basis,
the stock is trading at 4.0x FY12E EBITDA.
We have revised our DCF based target price for the company in view of the earnings
revision.
Maintain BUY on DPIL with a revised price target of Rs 264 (Rs 319 earlier). At our
target price, the stock would be valued at 8x FY12 earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DIAMOND POWER INFRASTRUCTURE LTD
RECOMMENDATION: BUY
TARGET PRICE: RS.264
FY12E P/E: 4.4X
q Order booking in the current quarter has been strong in conductors but
the EPC segment has been a laggard. Management believes that prices
quoted by competitors are unremunerative and in view of this it has preferred
to be conservative in order booking.
q The company's transmission tower plant has started commercial production.
However, it does not have any external orders and currently it is
doing job-work for captive orders. The company is discussing tower supply
orders with customers. EHV cables plant is expected to get commissioned
in May 2011.
q In view of the delay in new production facilities (EHV cables and Transmission
Towers), we have revised our earnings estimates downwards.
Consequently, our DCF based target price stands revised to Rs 264 (Rs 319
earlier). Maintain BUY.
Continued momentum in order intake
Order intake from state as well as private utilities has been healthy during the quarter.
Amidst concerns that order intake is slowing down, the company has won orders
worth over Rs 2.6 bn in the current quarter. In addition to this, the company is expecting
Rs 1.0 bn order for 3600 kms for which it has already received Letter Of
Intent. This order is expected before the end of current fiscal. In the distribution conductor
side, the company has been selected by TNEB for supply of 36500 kms of
distribution conductor worth Rs 750 mn.
Order book position is healthy
Order book of the company stands at Rs 16.5 bn providing a revenue visibility of
13.7 months. Order intake in the conductor segment has been healthy but the EPC
segment has been a laggard given aggressive prices quoted by competitors. Consequently,
the company has preferred to take a conservative approach in bidding for
EPC projects.
The cables business consists of short-cycle products with delivery period between 1-
3 months and hence is not essentially a order-book driven segment. The company
prefers to maintain 4-6 months of order backlog in this segment.
Update on capacity additions
The company recently commenced commercial operation of 50000 tpa transmission
towers facility. However, it has not received any external order for transmission towers
so far and is currently mainly doing jobwork for captive projects. The company is
in talks with transmission tower EPC players for tower supply arrangements.
So far as the EHV cables plant is concerned, the company expects to commission
this plant in May 2011. Since the EHV cable manufacturing has some level of technically
sophistication, the company would require technical approvals for reputed
agencies. The company indicated that for 400 KV and above there is a long-approval
and testing process of close to six months. Hence in the immediate term, the
company plans to run operations for making 150-200 kv cable orders for which approval
process is not time-consuming.
In the initial stage, the management has estimated revenue run-rate of Rs 110-120
mn per month from the EHV cables plant. We expect meaningful contribution from
the EHV cables and transmission towers to come from FY13 onwards.
Tax shield from Apex Transformers may limit tax rate in FY12
The company's subsidiary Apex Transformers (which was under BIFR) has commenced
manufacturing of transformers in current fiscal. Apex has a capacity of
12500 MVA of power transformer and reported Rs 200 mn revenues in Q3 FY11.
Apex has accumulated losses of Rs 1.8 bn, which is expected to provide tax shield to
the company.
Substantially strengthened balance sheet
Following the equity infusion through QIP and warrant conversion, the company has
a much improved balance sheet. Its debt-equity ratio stood at 1.1x at the end of
FY10, which has declined to 0.6x as of 9M FY11. The company has also optimized
its cost of borrowings by replacing high cost debt.
Earnings Revision
In view of the delay in transmission towers and EHV cables plant, we have reduced
our revenue estimates for FY12.
Further, we have adjusted EBITDA margins downwards in view of the rise in material
prices.
Stock attractively valued at 4.4x FY12 earnings
Diamond Power Infrastruture stock has been derated in the past few months despite
reporting strong earnings during the year. At the current price, the stock is trading at
4.7x and 4.4x FY11E and FY12E earnings respectively. On an FY11 EV/EBITDA basis,
the stock is trading at 4.0x FY12E EBITDA.
We have revised our DCF based target price for the company in view of the earnings
revision.
Maintain BUY on DPIL with a revised price target of Rs 264 (Rs 319 earlier). At our
target price, the stock would be valued at 8x FY12 earnings.
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