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India Equity Research Reports, IPO and Stock News
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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key takeaways
- construction players indicate continued sluggishness in on-ground execution
- Key bottlenecks include slow decision-making in the government machinery and stretched payment cycles. Maintain Outperformer on L&T, IVRCL, HCC and NCC, and Neutral on Simplex due to its relatively rich valuations.
Our recent interactions with construction players indicate continued sluggishness in on-ground execution. Key bottlenecks include slow decision-making in the government machinery and stretched payment cycles. Working-capital levels have been stubbornly high, leading to a continued rise in debt levels in Q2FY12. There has been a visible slowdown in order flows from the power sector even as ongoing projects face the risk of an execution slowdown. We have, therefore, lowered our revenue estimates for construction companies by 3-4%. Further, a rise in debt levels and borrowing rates would drive interest provisioning higher than earlier estimates. These factors have driven a 4-65% downgrade in our earnings estimates. We have lowered earnings of L&T by ~4% each for FY12 and FY13 and 20-65% for the smaller companies, including IVRCL, HCC and Simplex Infrastructures (Simplex). We have also revised our outstanding Q2FY12 earnings estimate for HCC to factor incremental concerns on execution, and now estimate a net loss of Rs158m for the quarter (from break-even earlier). While we expect near-term stress on earnings, we see limited downside for stocks from current levels after a sharp correction (20-60%) in the past six months. A likely peaking of interest rates and fund-raising through divestment of infra assets are the key potential triggers for the stocks in the near term. Maintain Outperformer on L&T, IVRCL, HCC and NCC, and Neutral on Simplex due to its relatively rich valuations.
Comparative valuation metrics
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FY12E
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Companies
|
Price
|
Mcap
|
EPS
|
PE
|
Unadj PE
|
EV/EBITDA
|
ROE
|
ROCE
|
Reco
|
TP
|
BOT value
|
(Rs)
|
(Rs mn)
|
(Rs)
|
(x)*
|
(x)
|
(x)*
|
(%)
|
(%)
|
(Rs)
|
(Rs)
| ||
Gammon India*
|
68
|
9,170
|
2.3
|
(11.3)
|
29.6
|
4.9
|
3.4
|
7.8
|
OP
|
116
|
93
|
HCC*
|
29
|
17,288
|
0.2
|
(44.3)
|
136.3
|
3.7
|
0.8
|
7.6
|
OP
|
40
|
38
|
L&T**
|
1,385
|
8,43,440
|
78.9
|
20.0
|
20.0
|
13.0
|
18.3
|
18.3
|
OP
|
1,825
|
-
|
NCC*
|
57
|
14,600
|
6.4
|
3.7
|
8.8
|
4.5
|
6.4
|
9.3
|
OP
|
104
|
33
|
IVRCL*
|
37
|
10,000
|
3.2
|
3.0
|
11.6
|
4.6
|
4.3
|
9.0
|
OP
|
57
|
28
|
Madhucon Projects*
|
70
|
5,166
|
6.6
|
4.1
|
10.6
|
0.4
|
7.7
|
11.1
|
OP
|
116
|
43
|
Simplex Infra
|
222
|
10,992
|
17.2
|
12.9
|
12.9
|
4.5
|
7.3
|
11
|
N
|
241
|
-
|
*- valuations adjusted for value of BOT/real estate assets ** -standalone financials
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