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E a r n i n g s m i s s ; P e r d a m a n o v e r h a n g …
Higher eliminations (| 221 crore), lower merchant power prices
(impacting sales), higher EBITDA margin (18%) in the construction
division and back down by SEBs (leading to lower PLFs in Udupi power
plant) were key highlights of Lanco Infratech’s Q1FY12 earnings.
Adjusting for elimination, Q1FY12 PAT stands at | 153 crore. Delay in
commissioning of the 1200 MW power plants (already declared CoD),
further delay in Lanco Budhil (70 MW), gas supply for 765 MW Kondapalli
3 (turbine ready for synchronisation), higher gross debt/equity (4x) makes
us cautious about the company. We are maintaining our BUY
recommendation on the stock. The Perdaman case ruling is a significant
overhang (final ruling in September 2011) on the stock.
ƒ Commissioning of 1200 MW in FY12, Lanco green project delayed
The current capacity of the company stands at 3287 MW. The
operational capacity stands at 2087 MW. In FY12, the company
expects the commissioning of 1200 MW (Anpara unit 2 - 600 MW
and Udupi – 600 MW). Lanco green (70 MW) is delayed.
ƒ High EBITDA margins in construction segment
Construction division margins stood at 17.6%. The consolidated
order book stands at | 31.016 crore of which ~ 85-90% is from the
captive business (thermal and solar power). During the quarter, the
company has won EPC orders worth | 365.3 crore from Akaz Power
for 2 * 125 MW gas based power plants.
V a l u a t i o n
At the CMP of | 16, the stock is trading at a P/E of 13.1x and 12.1x on
FY12E and FY13E EPS, respectively. Similarly, on P/BV multiples, the
stock is trading at 1.0x FY12E and 1.0 FY13E, respectively. We have
analysed the target price under various stress scenarios and arrived at a
target price range between |13 and | 29 depending on the outcome of
certain events that we have explained in detail in the report.
Conference call takeaways
• The company expects commissioning of the Anpara (600MW) and
Udupi (600 MW) power plants in Q3FY12
• Lanco Green (70 MW) has been delayed. The company expects to
commission the projects beyond December 2011. We have
modelled in Q1FY13 as the project commissioning date
• PAF for gas-based power plant Kondapalli 1 and 2 in Q1FY12
stands at 85% and 90%
• The order book for the construction division stands at | 31,016
crore
• PLFs in the Udupi Power plant (600 MW) declined 17% QoQ
mainly on account of back down by SEBs (Andhra Pradesh). The
company has not consolidated its numbers in results as it
continues to be classified as an associate. Post commissioning of
600 MW, the company would consolidate its earnings
• Merchant realisation for Q1FY12 stands at | 3.8/kwhr
• The company has given merchant realisation guidance of | 3.8-
4/kwhr for FY12
• Consolidated debt (including debt from associate companies)
stands at | 27842 crore. Consolidated cash as on June 30, 2011 is
| 1774 crore. Gross debt/equity is 4.2x while net debt/equity
stands at 3.9x
Update on Perdaman case
About the case: Multinational Perdaman Industries has dragged Lanco
Infratech to court in Australia seeking AU$3.5 billion (about | 16,600
crore) compensation for not complying with the coal supply pact. For its
upcoming urea plant, Perdaman had entered into a 25-year coal supply
pact with Griffin Coal, which was acquired by diversified group Lanco for
AU$730 million in March 2011. According to Australia-based Perdaman —
which is currently focused on urea production — Lanco is not complying
with the coal supply agreement. As per the contract with Griffin, about 89
million tonne (MT) of coal is to be supplied to Perdaman's upcoming
Collie urea project in Western Australia over 25 years.
Latest developments: Perdaman’s application for a freezing order making
Griffin refrain from entering into a charge or security without notice to
Perdaman, in the Supreme Court of Western Australia against Griffin Coal
Mining Pty Ltd, a group company of Lanco Infratech Limited, has been
dismissed. The hearing of the said application took place on July 27, 2011
before Justice Beech of the Supreme Court of Western Australia. In his
order, on August 11, 2011, Justice Beech dismissed Perdaman's
application in favour of Griffin. The next hearing for AU$3.5 billion (about
| 16,600 crore) will come up in September 2011.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
E a r n i n g s m i s s ; P e r d a m a n o v e r h a n g …
Higher eliminations (| 221 crore), lower merchant power prices
(impacting sales), higher EBITDA margin (18%) in the construction
division and back down by SEBs (leading to lower PLFs in Udupi power
plant) were key highlights of Lanco Infratech’s Q1FY12 earnings.
Adjusting for elimination, Q1FY12 PAT stands at | 153 crore. Delay in
commissioning of the 1200 MW power plants (already declared CoD),
further delay in Lanco Budhil (70 MW), gas supply for 765 MW Kondapalli
3 (turbine ready for synchronisation), higher gross debt/equity (4x) makes
us cautious about the company. We are maintaining our BUY
recommendation on the stock. The Perdaman case ruling is a significant
overhang (final ruling in September 2011) on the stock.
ƒ Commissioning of 1200 MW in FY12, Lanco green project delayed
The current capacity of the company stands at 3287 MW. The
operational capacity stands at 2087 MW. In FY12, the company
expects the commissioning of 1200 MW (Anpara unit 2 - 600 MW
and Udupi – 600 MW). Lanco green (70 MW) is delayed.
ƒ High EBITDA margins in construction segment
Construction division margins stood at 17.6%. The consolidated
order book stands at | 31.016 crore of which ~ 85-90% is from the
captive business (thermal and solar power). During the quarter, the
company has won EPC orders worth | 365.3 crore from Akaz Power
for 2 * 125 MW gas based power plants.
V a l u a t i o n
At the CMP of | 16, the stock is trading at a P/E of 13.1x and 12.1x on
FY12E and FY13E EPS, respectively. Similarly, on P/BV multiples, the
stock is trading at 1.0x FY12E and 1.0 FY13E, respectively. We have
analysed the target price under various stress scenarios and arrived at a
target price range between |13 and | 29 depending on the outcome of
certain events that we have explained in detail in the report.
Conference call takeaways
• The company expects commissioning of the Anpara (600MW) and
Udupi (600 MW) power plants in Q3FY12
• Lanco Green (70 MW) has been delayed. The company expects to
commission the projects beyond December 2011. We have
modelled in Q1FY13 as the project commissioning date
• PAF for gas-based power plant Kondapalli 1 and 2 in Q1FY12
stands at 85% and 90%
• The order book for the construction division stands at | 31,016
crore
• PLFs in the Udupi Power plant (600 MW) declined 17% QoQ
mainly on account of back down by SEBs (Andhra Pradesh). The
company has not consolidated its numbers in results as it
continues to be classified as an associate. Post commissioning of
600 MW, the company would consolidate its earnings
• Merchant realisation for Q1FY12 stands at | 3.8/kwhr
• The company has given merchant realisation guidance of | 3.8-
4/kwhr for FY12
• Consolidated debt (including debt from associate companies)
stands at | 27842 crore. Consolidated cash as on June 30, 2011 is
| 1774 crore. Gross debt/equity is 4.2x while net debt/equity
stands at 3.9x
Update on Perdaman case
About the case: Multinational Perdaman Industries has dragged Lanco
Infratech to court in Australia seeking AU$3.5 billion (about | 16,600
crore) compensation for not complying with the coal supply pact. For its
upcoming urea plant, Perdaman had entered into a 25-year coal supply
pact with Griffin Coal, which was acquired by diversified group Lanco for
AU$730 million in March 2011. According to Australia-based Perdaman —
which is currently focused on urea production — Lanco is not complying
with the coal supply agreement. As per the contract with Griffin, about 89
million tonne (MT) of coal is to be supplied to Perdaman's upcoming
Collie urea project in Western Australia over 25 years.
Latest developments: Perdaman’s application for a freezing order making
Griffin refrain from entering into a charge or security without notice to
Perdaman, in the Supreme Court of Western Australia against Griffin Coal
Mining Pty Ltd, a group company of Lanco Infratech Limited, has been
dismissed. The hearing of the said application took place on July 27, 2011
before Justice Beech of the Supreme Court of Western Australia. In his
order, on August 11, 2011, Justice Beech dismissed Perdaman's
application in favour of Griffin. The next hearing for AU$3.5 billion (about
| 16,600 crore) will come up in September 2011.
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