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Investment Rationale
~ Segment wise performance – Grabbing the opportunities
~ Change in business mix of the company
~ Order book pipeline
~ Expansion plans on track
Company Description
Lanco Infratech Limited is one of India’s top business
conglomerates and among the fastest growing. Lanco Infratech
has subsidiaries and divisions across a synergistic span of
verticals. The company also has pan India presence.
These include EPC, Construction, Power, Infrastructure and
Property Development. Lanco Infratech’s projects, operational and
underway, are spread across India. At present, the power portfolio
includes an installed capacity of 3,292 MW. The Construction and
EPC division of the company is executing various orders worth
more than ` 302 billion. The company is developing roads of
around 440 Kms of National Highways on BOT basis.
Valuation
The current order book of Rs. 302bn which is almost five times its
latest revenue gives it a good revenue visibility. Also with major
expansion plans on track and increased traction in EPC business
sets a positive outlook for the company. At current price the
stocks is trading at 9.65x and 8.19x FY12E and FY13E earnings
respectively. We see a target price of Rs. 30.
Segment wise performance – Grabbing the opportunities
EPC
The order book of the EPC segment stands at Rs. 302bn. Major orders
are 1200MW EPXC order from Moser Baer, 1980MW BoP order from
Mahagenco, Solar EPC and other industrial projects.
Moser Baer and Koradi orders marked the foray of Lanco into the
lucrative external EPC business.
EPC contributes 53% to the total revenue contribution before eliminating
the inter segment revenue. The in-house EPC projects work well for the
company.
Power
Total Power portfolio under operation and/or construction stands at
9,300 MW of which 3,292 MW is already installed and the rest 6,000
MW projects are financially closed & in various stages of construction.
Some of the projects are Udupi (1,200 MW), Anpara (600 MW),
Kondapalli (133 MW, Steam turbine) and Other Renewable (10 MW)
synchronized during the year.
Power contributes 44% to the revenue before eliminating the inter
segment revenue. It has presence across the value chain from fuel (coal
mining), construction EPC, generation and O&M to trading. Almost 74%
of the projects are depended on Coal followed by Gas and hydro.
Infrastructure
The segment has two road projects in the state of Karnataka totaling
around 160 km in length are closer to operations.
Emerged as successful bidder for developing National Highways
Authority of India’s (NHAI) Aligarh to Kanpur Section of National
Highway - 91 in the State of Uttar Pradesh on Design, Build, Finance,
Operate and Transfer (DBFOT) on Toll Basis. The Project involves an
investment of around ` 10,000 million and the Grant from NHAI would be
` 2,879 million.
Others
Property development (Lanco hills, Hyderabad – construction in
residential, office space, shopping mall and hotel space. Resources
(Griffin Coal) build up after the acquisition of Griffin Coal and couple of
coal blocks in Australia. Solar projects also in line.
Change in business mix of the company
Company's business mix is likely to undergo change due to
growing focus on EPC contracts from within the country and also
from overseas contracts, the latter likely to play a larger role over
the next few quarters. The overseas contracts will come from
Bangladesh, Indonesia and West Asia. Also power continuing to
be the major revenue contributor and operating margin expansion
is expected going forward on capacity expansion plans as well.
Order book pipeline
Of the EPC order book, about Rs 302bn is from within the
company. Of this 90% is from the power business of Lanco itself.
Last year, the company bagged three important third party EPC
orders including work for 1,200 MW power project of Moser Baer,
balance of plant (BoP) order from Mahagenco for its 1,980 MW
plant near Nagpur and a contract for 75 MW solar EPC order from
Mahagenco.
Recently the company has also bagged its first international order
from Iraq to set up a 2x125 MW AKAZ power plant in Al-Anbar
province.The project worth Rs 365.28 crore (about $81.3 million)
is scheduled to be completed within 16 months
Among other projects company is also developing around 440 km
roads of national highway on a build operate and transfer basis.
Expansion plans on track
Lanco currently has 3292MW capacity in place. Lanco Infratech
Ltd is set to add 1,600 MW of power generation capacity during
2011-2012 and has firmed up a capital expenditure of Rs 9,000
crore
This new addition includes 600 MW of Udupi thermal plant, 600
MW of Anpara coal plant, and 70 MW of hydel power generation
from Budhil and 740 MW at the Kondapalli expansion project.
Company's plans to invest `35,000 crore to take the installed
capacity to 15,000 MW by 2015.
They are currently, looking for coal mines in Australia, Africa and
Indonesia. They have bid for new engineering, procurement and
construction (EPC) power projects in emerging markets. They
have qualified in various regions and expect to bag some EPC
projects in Bangladesh and Indonesia, soon. Power projects
require a long gestation period around a 10 years perspective. In
the next 10 years they will also look at commissioning 5,000 Mw
internationally as well.
The company’s aggressive capacity expansion plans are seen
sustaining earnings growth and continuous cash flow going
forward.
Valuation
The current order book of Rs. 302bn which is almost five times its
latest revenue gives it a good revenue visibility. Also with major
expansion plans on track and increased traction in EPC business
sets a positive outlook for the company. At current price the
stocks is trading at 9.65x and 8.19x FY12E and FY13E earnings
respectively. We see a target price of Rs. 30.
Concern
Softening merchant prices, fuel availability and rising coal prices
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