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4QFY11: A mixed bag
Revenue in line, margins exceed expectations
Interest cost higher due to high-cost debt
Debt-equity ratio of 2.2x; working capital to LTM revenue was 84%
TP INR49; construction INR13, Lavasa INR15, BOT& Others INR21
Higher interest impacts PAT
HCC reported 4QFY11 revenue of
INR12.0b (2.3% above our estimate), a
10.8% y-y increase. EBITDA was
INR1662m (8% above our estimate), a y-y
increase of 35.1%. The higher EBITDA
was due to better margins: EBITDA
margin expanded 250bp y-y to 13.8%,
mainly due to lower raw material and
construction expenses as a percentage of
revenue. Interest costs increased 103.8%
y-y to INR902.8m, mainly due to high-cost
debt, which was used to partly repay the
FCCB (INR6b). Reported PAT was
INR226.1m (10.5% below our estimate), a
y-y decline of 47.4%. Excluding forex adjustments (and taxes thereon),
recurring PAT fell 44% y-y, mainly due to higher interest (103.8% y-y)
and depreciation (118.4% y-y) expenses.
Lavasa remains the key driver
The top-line performance was in line with our expectation. EBITDA
margin was 13.1% for FY11. We estimate EBITDA margin of 13% for
FY12-13 (flat compared to FY11). Interest costs were higher due to the
replacement of FCCB debt with the higher-cost rupee debt. We maintain
our view that reduction of receivables will be the major driver for
improving balance sheet. The company had a debt-equity ratio of 2.2x
and a net working capital to LTM (last twelve months) revenue ratio of
84% as at end-FY11. We reiterate that Lavasa will be the key driver for
the share price and expect the MoEF to give clearance to the project in a
phased manner, although predicting the timing of the clearance remains
difficult. We believe the stock’s current valuations factor in negatives
materially. We will revisit our estimates after incorporating the 4QFY11
results.
Valuation
Our TP of INR49 is based on a sum-of-the-parts valuation. The
standalone business contributes INR13, using 6.4x EV/EBITDA on 1-year
forward EBITDA or about 8x P/E, which is 20% lower than the multiple
we have assigned to its peers. BOT projects contribute INR17, including
the West Bengal project. Investments in 247 Park and Karl Steiner have
been valued at INR4 based on their transaction values. Lavasa
contributes INR15 based on a 50% discount to our NAV estimate.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
4QFY11: A mixed bag
Revenue in line, margins exceed expectations
Interest cost higher due to high-cost debt
Debt-equity ratio of 2.2x; working capital to LTM revenue was 84%
TP INR49; construction INR13, Lavasa INR15, BOT& Others INR21
Higher interest impacts PAT
HCC reported 4QFY11 revenue of
INR12.0b (2.3% above our estimate), a
10.8% y-y increase. EBITDA was
INR1662m (8% above our estimate), a y-y
increase of 35.1%. The higher EBITDA
was due to better margins: EBITDA
margin expanded 250bp y-y to 13.8%,
mainly due to lower raw material and
construction expenses as a percentage of
revenue. Interest costs increased 103.8%
y-y to INR902.8m, mainly due to high-cost
debt, which was used to partly repay the
FCCB (INR6b). Reported PAT was
INR226.1m (10.5% below our estimate), a
y-y decline of 47.4%. Excluding forex adjustments (and taxes thereon),
recurring PAT fell 44% y-y, mainly due to higher interest (103.8% y-y)
and depreciation (118.4% y-y) expenses.
Lavasa remains the key driver
The top-line performance was in line with our expectation. EBITDA
margin was 13.1% for FY11. We estimate EBITDA margin of 13% for
FY12-13 (flat compared to FY11). Interest costs were higher due to the
replacement of FCCB debt with the higher-cost rupee debt. We maintain
our view that reduction of receivables will be the major driver for
improving balance sheet. The company had a debt-equity ratio of 2.2x
and a net working capital to LTM (last twelve months) revenue ratio of
84% as at end-FY11. We reiterate that Lavasa will be the key driver for
the share price and expect the MoEF to give clearance to the project in a
phased manner, although predicting the timing of the clearance remains
difficult. We believe the stock’s current valuations factor in negatives
materially. We will revisit our estimates after incorporating the 4QFY11
results.
Valuation
Our TP of INR49 is based on a sum-of-the-parts valuation. The
standalone business contributes INR13, using 6.4x EV/EBITDA on 1-year
forward EBITDA or about 8x P/E, which is 20% lower than the multiple
we have assigned to its peers. BOT projects contribute INR17, including
the West Bengal project. Investments in 247 Park and Karl Steiner have
been valued at INR4 based on their transaction values. Lavasa
contributes INR15 based on a 50% discount to our NAV estimate.
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