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business on recovery path
We recently met the CEO of the company who seemed confident of a slow and steady recovery in the business which is likely to be reflected in quarterly numbers from Q2FY12F. The main highlights of the business, as per the CEO are as follows:
1) Power conductor business, Power Grid Corporation of India (PGCIL) has started releasing orders for conductors after a lull of almost 11 months. This has resulted in order book of the company going up to Rs 22 bn from Rs 16 bn at the end of Q3FY11. This increase in order book is expected to continue in next few quarters as the backlog gets cleared. The execution cycle for these good margins orders is likely to be reflected in numbers by Q2FY12F. In the meantime, margins in this business will likely remain depressed (although going up from Q3FY11 levels) as the low margin orders execution completes.
2) The optical fiber business is doing well with stable pricing and decent traction from Europe (which contributes 30% of revenues) due to consolidation of vendors and clients' desire to look for alternative suppliers. Also, demand and visibility from British Telecom (BT.A) remains good. Demand in China (after a 20% fall from the peak) has stabilized and this has led to stability in global prices of fiber. New demand drivers like India 3G roll-out may lead to 3 fold increase in fiber usage in that geography, as per management.
In our view, the worst is over for the company in both businesses and this is likely to be reflected in quarterly numbers going forward ( specially in H2FY12F). The stock is trading at P/E of 10X on FY12F EPS of Rs 6.9 which is attractive considering it is FCF generating company with strong businesses, which are likely to recover and grow strongly on YoY basis in next few quarters. We remain positive on the stock and maintain our BUY rating on it.
Valuation Methodology and Investment Risks: We like the business model and strong competitive positioning of the company and maintain a BUY call. Our TP of INR 98 is based on 12x 1-year forward EPS. Investment risks: Delay in pick-up of capex cycle: demand for optical fibre and cables are dependent on growth in the number of telecom subscribers, 3G and broadband services. Therefore, any economic shock to the global economy could have a negative impact on the growth of these demand drivers. Also, revenues of the power conductor business could be affected if transmission capex in India is delayed.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
business on recovery path
We recently met the CEO of the company who seemed confident of a slow and steady recovery in the business which is likely to be reflected in quarterly numbers from Q2FY12F. The main highlights of the business, as per the CEO are as follows:
1) Power conductor business, Power Grid Corporation of India (PGCIL) has started releasing orders for conductors after a lull of almost 11 months. This has resulted in order book of the company going up to Rs 22 bn from Rs 16 bn at the end of Q3FY11. This increase in order book is expected to continue in next few quarters as the backlog gets cleared. The execution cycle for these good margins orders is likely to be reflected in numbers by Q2FY12F. In the meantime, margins in this business will likely remain depressed (although going up from Q3FY11 levels) as the low margin orders execution completes.
2) The optical fiber business is doing well with stable pricing and decent traction from Europe (which contributes 30% of revenues) due to consolidation of vendors and clients' desire to look for alternative suppliers. Also, demand and visibility from British Telecom (BT.A) remains good. Demand in China (after a 20% fall from the peak) has stabilized and this has led to stability in global prices of fiber. New demand drivers like India 3G roll-out may lead to 3 fold increase in fiber usage in that geography, as per management.
In our view, the worst is over for the company in both businesses and this is likely to be reflected in quarterly numbers going forward ( specially in H2FY12F). The stock is trading at P/E of 10X on FY12F EPS of Rs 6.9 which is attractive considering it is FCF generating company with strong businesses, which are likely to recover and grow strongly on YoY basis in next few quarters. We remain positive on the stock and maintain our BUY rating on it.
Valuation Methodology and Investment Risks: We like the business model and strong competitive positioning of the company and maintain a BUY call. Our TP of INR 98 is based on 12x 1-year forward EPS. Investment risks: Delay in pick-up of capex cycle: demand for optical fibre and cables are dependent on growth in the number of telecom subscribers, 3G and broadband services. Therefore, any economic shock to the global economy could have a negative impact on the growth of these demand drivers. Also, revenues of the power conductor business could be affected if transmission capex in India is delayed.
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