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India Equity Research Reports, IPO and Stock News
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HIND DORR OLIVER
PRICE: RS.41 RECOMMENDATION: BUY
TARGET PRICE: RS.61 FY12E P/E: 7.0X
q Order backlog has remained stagnant since past several quarters at
around Rs 13-14 bn levels resulting in significant reduction in revenue
visibility. We remain concerned on this front. An important trigger for
the stock could be award of UCIL order worth Rs 3.5 bn, wherein HDO is
the only bidder.
q The stock has underperformed the market in the past three months primarily
due to the soft order intake, poor Q4FY11 numbers and subdued
outlook for industrial projects.
q Maintain BUY due to beaten down valuations but retain cautious stance
on the company in view of deteriorating cash generation and stagnant
order backlog. Prefer capital goods stocks with higher revenue visibility
and unleveraged balance sheets.
Key meeting highlights
n Hindustan Dorr Oliver Ltd (HDO) is an EPC company having its core business activities
in providing engineered solutions, technologies and EPC installations in
liquid-solid separation applications (water, waste water treatment and mineral
ore processing).
n In the previous fiscal, the company's revenues received a setback due to stoppage
of work at company's Lanjigarh project site (Alumina refinery project promoted
by Vedanta Group). This was on account of the environment ministry denying
permission for expansion of refinery capacity. As a result, revenues declined
28% yoy in Q4 FY11. On an overall basis, the company has around Rs 2.0
bn of unexecuted work pertaining to the Vedanta Group, bulk of which is at
Lanjigarh. As of now there has been no change in the status so far as this project
is concerned.
n The stalemate at its Lanjigarh site also impacted the balance sheet as the debtors
outstanding rose significantly in FY11 to Rs 2.9 bn from Rs 1.67 bn in FY10.
The resultant crunch in cash collection led to an increase in borrowings which
shot up to Rs 2.0 bn in FY11 from Rs 786 mn in FY10.
n EBITDA margins were hit due to cost-overrun in one of its major projects for
HPCL-Mittal refinery at Bhatinda. The company provided Rs 100 mn in Q4 FY11
towards cost overrun pertaining to this project. This is a prestigious project for the
company as it is executing several individual orders at the same location including
raw water treatment plant, effluent treatment plant and demineralization
plant. The overall size of all the orders combined was unprecedented for HDO
and hence there was some slippage in project cost. The management noted that
as of now only close to 10% of this project remains unexecuted. The company
does not expect further provisions in FY12.
n HDO's order backlog at the end of Q4 FY11 stood at Rs 14.0 bn, which has remained
stagnant since the past seven quarters. The company noted that it was
in a strong position to win a major piping order from Nuclear Power Corp (NPC),
which it lost out to Punj Lloyd. The company was also expecting some large coal
beneficiation packages to be awarded but it has not materialized so far.
n The company is the only bidder for a repeat order from UCIL worth Rs 3.5 bn.
This order has been delayed for the last six months. However, the management
indicated that the earlier order of Rs 4.4 bn (ore processing facility at
Cuddappah, AP) is nearing completion after which UCIL may give the go-ahead
for the fresh ore processing order to HDO.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
HIND DORR OLIVER
PRICE: RS.41 RECOMMENDATION: BUY
TARGET PRICE: RS.61 FY12E P/E: 7.0X
q Order backlog has remained stagnant since past several quarters at
around Rs 13-14 bn levels resulting in significant reduction in revenue
visibility. We remain concerned on this front. An important trigger for
the stock could be award of UCIL order worth Rs 3.5 bn, wherein HDO is
the only bidder.
q The stock has underperformed the market in the past three months primarily
due to the soft order intake, poor Q4FY11 numbers and subdued
outlook for industrial projects.
q Maintain BUY due to beaten down valuations but retain cautious stance
on the company in view of deteriorating cash generation and stagnant
order backlog. Prefer capital goods stocks with higher revenue visibility
and unleveraged balance sheets.
Key meeting highlights
n Hindustan Dorr Oliver Ltd (HDO) is an EPC company having its core business activities
in providing engineered solutions, technologies and EPC installations in
liquid-solid separation applications (water, waste water treatment and mineral
ore processing).
n In the previous fiscal, the company's revenues received a setback due to stoppage
of work at company's Lanjigarh project site (Alumina refinery project promoted
by Vedanta Group). This was on account of the environment ministry denying
permission for expansion of refinery capacity. As a result, revenues declined
28% yoy in Q4 FY11. On an overall basis, the company has around Rs 2.0
bn of unexecuted work pertaining to the Vedanta Group, bulk of which is at
Lanjigarh. As of now there has been no change in the status so far as this project
is concerned.
n The stalemate at its Lanjigarh site also impacted the balance sheet as the debtors
outstanding rose significantly in FY11 to Rs 2.9 bn from Rs 1.67 bn in FY10.
The resultant crunch in cash collection led to an increase in borrowings which
shot up to Rs 2.0 bn in FY11 from Rs 786 mn in FY10.
n EBITDA margins were hit due to cost-overrun in one of its major projects for
HPCL-Mittal refinery at Bhatinda. The company provided Rs 100 mn in Q4 FY11
towards cost overrun pertaining to this project. This is a prestigious project for the
company as it is executing several individual orders at the same location including
raw water treatment plant, effluent treatment plant and demineralization
plant. The overall size of all the orders combined was unprecedented for HDO
and hence there was some slippage in project cost. The management noted that
as of now only close to 10% of this project remains unexecuted. The company
does not expect further provisions in FY12.
n HDO's order backlog at the end of Q4 FY11 stood at Rs 14.0 bn, which has remained
stagnant since the past seven quarters. The company noted that it was
in a strong position to win a major piping order from Nuclear Power Corp (NPC),
which it lost out to Punj Lloyd. The company was also expecting some large coal
beneficiation packages to be awarded but it has not materialized so far.
n The company is the only bidder for a repeat order from UCIL worth Rs 3.5 bn.
This order has been delayed for the last six months. However, the management
indicated that the earlier order of Rs 4.4 bn (ore processing facility at
Cuddappah, AP) is nearing completion after which UCIL may give the go-ahead
for the fresh ore processing order to HDO.
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