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Lanco Infratech (LANCI)
Utilities
4QFY11—construction margins disappoint. Lanco Infratech’s (LITL) earnings from the
power segment (operating profit of Rs4.7 bn, 55% qoq) were dwarfed by weak margins and
eliminations from the construction business. During the quarter, LITL completed the acquisition
of Griffin Coal, Australia which contributed with operating profit of Rs487 mn for March 2011.
We maintain our rating with a revised target price of Rs54/share though seek further clarity on
eliminations and earnings from the construction business.
Eliminations in construction business gobble up power earnings
LITL reported consolidated revenues of Rs20.2 bn (-14% yoy, 30% qoq), operating profit of Rs3.6
bn (-40% yoy, -23% qoq) and net income of Rs169 mn (-84% yoy, -90% qoq) against our
estimate of Rs16.7 bn, Rs5.2 bn and Rs1.5 bn, respectively. Higher-than-estimated revenues were
primarily on account of (1) higher-than estimated power trading revenues (Rs3.6 bn against
estimated Rs1.6 bn) and (2) contribution of Rs1.3 bn from Griffin Coal which was not factored in
our estimates. However, disappointing EPC margins and elimination of EPC earnings (at EBIT level)
led to an EBITDA miss of 30%. We note that the miss would have been further magnified, barring
the contribution of Rs349 mn from Griffin Coal.
Construction margins weak, eliminations exceed earnings
LITL reported consolidated construction revenues of Rs18 bn (against standalone revenues of
Rs16.6 bn) for 4QFY11 and net revenue contribution after eliminations of Rs10.6 bn was up 12%
qoq. Correspondingly, consolidated EBIT at Rs1.4 bn (standalone EBIT of Rs1.3 bn) was offset by
eliminations of Rs2.5 bn. LITL management has highlighted that EPC revenues and margins were
hit by a shift in the milestone payment for projects such as Vidarbha, Babandh and Udupi. EBITDA
margins (standalone, without elimination) dropped from 13% in 3QFY11 to 7.9% in 4QFY11.
Maintain rating though seek clarification on construction business
We maintain our BUY rating with a revised target price of Rs54/share (previously Rs65/share). Our
SOTP-based target price now comprises (1) DCF-equity of power project portfolio at Rs49/share
and (2) construction business valued at Rs7/share at EV/EBITDA of 5X on FY2013E EBITDA. We
have reduced our EPS estimates to Rs4/share in FY2012E (previously Rs4.9/share) and Rs4.6/share
in FY2013E (previously Rs5.1/share) as we adjust for (1) commissioning delays of projects, (2) lower
utilization of gas-based as well as coal-based capacities, and (3) higher elimination of construction
revenues.
Power—stable operating performance a silver lining
Power revenues increased from Rs8.5 bn in 3QFY11 to Rs13.3 bn in 4QFY11 driven by
strong trading revenues and improved merchant realizations at Kondapalli and Amarkantak.
However, PLFs were disappointing with Kondapalli registering an average PLF of ~60% and
Amarkantak registering 71% in 4QFY11.
We discuss in detail some of the key highlights of the results of the power segment and key
takeaways from the conference call.
Consolidation of Udupi. We note that during the quarter the first unit of Udupi
commenced commercial operations, though earnings were not consolidated as Udupi
continues to be classified as an associate, and will be converted into a subsidiary upon
commercialization of the second unit. The management has highlighted that the COD of
second unit is contingent on development o transmission line and has guided for likely
COD in 3QFY12E.
Merchant sale. Merchant realizations improved significantly in 4QFY11 with average
realization of Rs4.57/kwh for Amarkantak (Rs4.1/kwh in 3QFY11) and Rs4.25/kwh for
Kondapalli (Rs3.5/kwh in 3QFY11).
Generation. Benefits of strong merchant realization were partially offset by lower
generation with PLFs at both Kondapalli and Amarkantak remaining weak. The
management has, however, highlighted that there has been improvement in receipt of
gas at Kondapalli and PLFs have improved till date in 1QFY12.
Capex of Rs87 bn in FY2011 signals robust execution
Project execution remains strong with LTIL already reaching an installed capacity of 3,292
MW (including 1200 MW of Anpara and Udupi units that have not been declared
commercial) implying a total capacity addition of 1,933 MW in FY2011. Further, LITL
incurred a total capex of Rs87 bn on its power portfolio in FY2011 indicating strong
progress on under-construction projects. We note that of the total project cost of Rs314 bn
for portfolio of under construction and under development projects, LITL has already
incurred a capex of Rs128 bn as of March 2011.
The management has guided for commissioning of 70 MW hydro plant and Unit II of
Anpara (600 MW) in 1HFY12E leading to total commissioning of 670 MW in the first half.
We note that LITL has already synchronized first unit of Anpara and the management is
targeting commercial operations from both the units in 1HFY12E
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lanco Infratech (LANCI)
Utilities
4QFY11—construction margins disappoint. Lanco Infratech’s (LITL) earnings from the
power segment (operating profit of Rs4.7 bn, 55% qoq) were dwarfed by weak margins and
eliminations from the construction business. During the quarter, LITL completed the acquisition
of Griffin Coal, Australia which contributed with operating profit of Rs487 mn for March 2011.
We maintain our rating with a revised target price of Rs54/share though seek further clarity on
eliminations and earnings from the construction business.
Eliminations in construction business gobble up power earnings
LITL reported consolidated revenues of Rs20.2 bn (-14% yoy, 30% qoq), operating profit of Rs3.6
bn (-40% yoy, -23% qoq) and net income of Rs169 mn (-84% yoy, -90% qoq) against our
estimate of Rs16.7 bn, Rs5.2 bn and Rs1.5 bn, respectively. Higher-than-estimated revenues were
primarily on account of (1) higher-than estimated power trading revenues (Rs3.6 bn against
estimated Rs1.6 bn) and (2) contribution of Rs1.3 bn from Griffin Coal which was not factored in
our estimates. However, disappointing EPC margins and elimination of EPC earnings (at EBIT level)
led to an EBITDA miss of 30%. We note that the miss would have been further magnified, barring
the contribution of Rs349 mn from Griffin Coal.
Construction margins weak, eliminations exceed earnings
LITL reported consolidated construction revenues of Rs18 bn (against standalone revenues of
Rs16.6 bn) for 4QFY11 and net revenue contribution after eliminations of Rs10.6 bn was up 12%
qoq. Correspondingly, consolidated EBIT at Rs1.4 bn (standalone EBIT of Rs1.3 bn) was offset by
eliminations of Rs2.5 bn. LITL management has highlighted that EPC revenues and margins were
hit by a shift in the milestone payment for projects such as Vidarbha, Babandh and Udupi. EBITDA
margins (standalone, without elimination) dropped from 13% in 3QFY11 to 7.9% in 4QFY11.
Maintain rating though seek clarification on construction business
We maintain our BUY rating with a revised target price of Rs54/share (previously Rs65/share). Our
SOTP-based target price now comprises (1) DCF-equity of power project portfolio at Rs49/share
and (2) construction business valued at Rs7/share at EV/EBITDA of 5X on FY2013E EBITDA. We
have reduced our EPS estimates to Rs4/share in FY2012E (previously Rs4.9/share) and Rs4.6/share
in FY2013E (previously Rs5.1/share) as we adjust for (1) commissioning delays of projects, (2) lower
utilization of gas-based as well as coal-based capacities, and (3) higher elimination of construction
revenues.
Power—stable operating performance a silver lining
Power revenues increased from Rs8.5 bn in 3QFY11 to Rs13.3 bn in 4QFY11 driven by
strong trading revenues and improved merchant realizations at Kondapalli and Amarkantak.
However, PLFs were disappointing with Kondapalli registering an average PLF of ~60% and
Amarkantak registering 71% in 4QFY11.
We discuss in detail some of the key highlights of the results of the power segment and key
takeaways from the conference call.
Consolidation of Udupi. We note that during the quarter the first unit of Udupi
commenced commercial operations, though earnings were not consolidated as Udupi
continues to be classified as an associate, and will be converted into a subsidiary upon
commercialization of the second unit. The management has highlighted that the COD of
second unit is contingent on development o transmission line and has guided for likely
COD in 3QFY12E.
Merchant sale. Merchant realizations improved significantly in 4QFY11 with average
realization of Rs4.57/kwh for Amarkantak (Rs4.1/kwh in 3QFY11) and Rs4.25/kwh for
Kondapalli (Rs3.5/kwh in 3QFY11).
Generation. Benefits of strong merchant realization were partially offset by lower
generation with PLFs at both Kondapalli and Amarkantak remaining weak. The
management has, however, highlighted that there has been improvement in receipt of
gas at Kondapalli and PLFs have improved till date in 1QFY12.
Capex of Rs87 bn in FY2011 signals robust execution
Project execution remains strong with LTIL already reaching an installed capacity of 3,292
MW (including 1200 MW of Anpara and Udupi units that have not been declared
commercial) implying a total capacity addition of 1,933 MW in FY2011. Further, LITL
incurred a total capex of Rs87 bn on its power portfolio in FY2011 indicating strong
progress on under-construction projects. We note that of the total project cost of Rs314 bn
for portfolio of under construction and under development projects, LITL has already
incurred a capex of Rs128 bn as of March 2011.
The management has guided for commissioning of 70 MW hydro plant and Unit II of
Anpara (600 MW) in 1HFY12E leading to total commissioning of 670 MW in the first half.
We note that LITL has already synchronized first unit of Anpara and the management is
targeting commercial operations from both the units in 1HFY12E
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