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Lanco Infratech (LAIN.BO)
Buy Equity Research
Below expectations on higher eliminations and lower EPC margins
What surprised us
Lanco Infratech reported FY11 PAT of Rs4.4bn, below GSe of Rs5.6bn and
Bloomberg consensus of Rs6.5bn, primarily due to 1) higher eliminations, as
EPC revenue recognition for subsidiaries was higher than we had expected; 2)
lower EPC margins (7% vs. GSe 13%) as revenues for Vidharbha and Babandh
were not recognized due to non-achievement of critical milestones. However,
performance of the power division was in line with our estimates. 4QFY11
merchant tariffs were Rs4.3/kwh-4.7/kwh for Amarkantak and Kondapalli II
power projects, and management guided for FY12 merchant realizations to be
around Rs4/kwh, with 1QFY12 realizations of about Rs5.5/kwh.
On power projects under construction, Lanco indicated that 1) Anpara Unit
1 (600MW) will be commissioned by 2QFY12; 2) Kondapalli III (742MW)
will become operational during 2HFY12; however, no visibility on gas yet;
and; 3) Udupi Unit 2 likely to be commissioned by 3QFY12. We expect
Lanco to have installed capacity of about 4000MW by FY12E.
What to do with the stock
We retain CL-Buy on Lanco with 12-m SOTP-based TP of Rs54, implying
potential upside of 62%. We believe the stock price is not reflecting the value
of 4GW of projects under development and about 50% of the value of its
construction business. We believe further visibility on commissioning of
projects will be the key for re-rating of the stock. We lower our FY12E/13E
EPS by 1%-3% to reflect higher expenses, and wait for further visibility on
EPC revenue mix over the next two quarters. The stock is trading at a 36%
discount on FY12E P/E and P/B relative to peers. Key risk: Higher-thanexpected decline in merchant tariffs and delays in projects.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lanco Infratech (LAIN.BO)
Buy Equity Research
Below expectations on higher eliminations and lower EPC margins
What surprised us
Lanco Infratech reported FY11 PAT of Rs4.4bn, below GSe of Rs5.6bn and
Bloomberg consensus of Rs6.5bn, primarily due to 1) higher eliminations, as
EPC revenue recognition for subsidiaries was higher than we had expected; 2)
lower EPC margins (7% vs. GSe 13%) as revenues for Vidharbha and Babandh
were not recognized due to non-achievement of critical milestones. However,
performance of the power division was in line with our estimates. 4QFY11
merchant tariffs were Rs4.3/kwh-4.7/kwh for Amarkantak and Kondapalli II
power projects, and management guided for FY12 merchant realizations to be
around Rs4/kwh, with 1QFY12 realizations of about Rs5.5/kwh.
On power projects under construction, Lanco indicated that 1) Anpara Unit
1 (600MW) will be commissioned by 2QFY12; 2) Kondapalli III (742MW)
will become operational during 2HFY12; however, no visibility on gas yet;
and; 3) Udupi Unit 2 likely to be commissioned by 3QFY12. We expect
Lanco to have installed capacity of about 4000MW by FY12E.
What to do with the stock
We retain CL-Buy on Lanco with 12-m SOTP-based TP of Rs54, implying
potential upside of 62%. We believe the stock price is not reflecting the value
of 4GW of projects under development and about 50% of the value of its
construction business. We believe further visibility on commissioning of
projects will be the key for re-rating of the stock. We lower our FY12E/13E
EPS by 1%-3% to reflect higher expenses, and wait for further visibility on
EPC revenue mix over the next two quarters. The stock is trading at a 36%
discount on FY12E P/E and P/B relative to peers. Key risk: Higher-thanexpected decline in merchant tariffs and delays in projects.
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