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Lanco Infratech Ltd.
Execution pace continues;
Retain Buy
„Reiterate Buy
Retain Buy on (a) under-appreciation of power capacity expansion plans of the
company, which is likely to double by FY14E (b) 46% sales volume growth (c)
shift to LT sales (75% by FY14E vs 44% in FY11E) reducing EPS volatility, (d)
greater visibility in solar business. Stock offers a good buying opportunity as it
trades in lowest quartile of its historical trading band, post a 33% underperformance in last 3m. Cut PO to Rs33 (Rs60 earlier) due to lower power
valuation, inclusion of solar and higher net debt. We also cut our FY12E/13E EPS
by ~80/66% on elimination of inter-segment profits as execution shift towards
subsidiaries vs associates earlier, lower power profit and delay in mining ramp up.
Capacity scale up by 2x during FY11-14E
Lanco is well poised to double its power capacity over FY11-14E to 5.3GW and
further to 7.9GW by FY15E (FC achieved, under construction). Lanco is already
operating / has synchronized 3.3GW of capacity (among the top three private
IPPs in India), thereby underpinning our confidence in the capacity scale-up.
Poised to become an integrated player in solar (10% of SOTP)
Lanco’s solar EPC division has an order book of Rs53bn (external orders: ~60%)
expected to be executed during FY12-14E. Also, it has 136MW of solar utility
projects (PV: 36MW; solar thermal: 100MW) under construction, which is slated to
become operational in FY12-14E. Lanco is also setting up an integrated solar
manufacturing facility at Rs13.7bn, of which module plant is already operational.
Risks: Delay in execution, ST tariff, fuel shortage
Downside risks: significant fall in ST prices, shortage of fuel supply, regulatory
risk, execution delay, aggressive competitive bids, worsening SEB financials,
potential liability risk on coal mine litigation and potential dilution.
Price objective basis & risk
Lanco Infratech Ltd. (LNIFF)
We have used sum-of-the-parts (SOTP) to arrive at the PO of Rs33 is primarily
based on DCF, mutiples and holding company discount of 15%. It comprises:
1) Power assets - operating as well as construction - Rs23/sh (69%) valued using
DCF with varying CoE 14-16% and exit P/BV of 1x FY12 for regulated assets.
2) EPC business - Rs11sh (33%) valued using exit P/E of 10x FY13E - in line with
other mid-cap construction companies
3) Solar business - Rs3 (10%) valued using exit P/E of 7x FY13E for the EPC
division, DCF for the utility business at CoE 16% and P/BV 1x for manufacturing
3) Coal mines in Australia - Rs 5/sh (12%) using DCF at CoE of 18%
4) Balance Rs(3)/sh consists of road BOT projects, power trading, realty, cash,
liquid investment less net debt.
Downside risks: significant delay in execution, sharp decline in short-term tariff,
regulatory risk, higher interest rate, worsening SEB financials and potential
liability risk on coal mine litigation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lanco Infratech Ltd.
Execution pace continues;
Retain Buy
„Reiterate Buy
Retain Buy on (a) under-appreciation of power capacity expansion plans of the
company, which is likely to double by FY14E (b) 46% sales volume growth (c)
shift to LT sales (75% by FY14E vs 44% in FY11E) reducing EPS volatility, (d)
greater visibility in solar business. Stock offers a good buying opportunity as it
trades in lowest quartile of its historical trading band, post a 33% underperformance in last 3m. Cut PO to Rs33 (Rs60 earlier) due to lower power
valuation, inclusion of solar and higher net debt. We also cut our FY12E/13E EPS
by ~80/66% on elimination of inter-segment profits as execution shift towards
subsidiaries vs associates earlier, lower power profit and delay in mining ramp up.
Capacity scale up by 2x during FY11-14E
Lanco is well poised to double its power capacity over FY11-14E to 5.3GW and
further to 7.9GW by FY15E (FC achieved, under construction). Lanco is already
operating / has synchronized 3.3GW of capacity (among the top three private
IPPs in India), thereby underpinning our confidence in the capacity scale-up.
Poised to become an integrated player in solar (10% of SOTP)
Lanco’s solar EPC division has an order book of Rs53bn (external orders: ~60%)
expected to be executed during FY12-14E. Also, it has 136MW of solar utility
projects (PV: 36MW; solar thermal: 100MW) under construction, which is slated to
become operational in FY12-14E. Lanco is also setting up an integrated solar
manufacturing facility at Rs13.7bn, of which module plant is already operational.
Risks: Delay in execution, ST tariff, fuel shortage
Downside risks: significant fall in ST prices, shortage of fuel supply, regulatory
risk, execution delay, aggressive competitive bids, worsening SEB financials,
potential liability risk on coal mine litigation and potential dilution.
Price objective basis & risk
Lanco Infratech Ltd. (LNIFF)
We have used sum-of-the-parts (SOTP) to arrive at the PO of Rs33 is primarily
based on DCF, mutiples and holding company discount of 15%. It comprises:
1) Power assets - operating as well as construction - Rs23/sh (69%) valued using
DCF with varying CoE 14-16% and exit P/BV of 1x FY12 for regulated assets.
2) EPC business - Rs11sh (33%) valued using exit P/E of 10x FY13E - in line with
other mid-cap construction companies
3) Solar business - Rs3 (10%) valued using exit P/E of 7x FY13E for the EPC
division, DCF for the utility business at CoE 16% and P/BV 1x for manufacturing
3) Coal mines in Australia - Rs 5/sh (12%) using DCF at CoE of 18%
4) Balance Rs(3)/sh consists of road BOT projects, power trading, realty, cash,
liquid investment less net debt.
Downside risks: significant delay in execution, sharp decline in short-term tariff,
regulatory risk, higher interest rate, worsening SEB financials and potential
liability risk on coal mine litigation.
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