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Post disappointing 2QFY12 results, we reduce our earnings by 14-15% for FY12-14F, a reflection
of structural margin decline across segments. Our new DCF-based target price of Rs155 implies
a target PE of 13.4x FY13E EPS versus the average PE of 17x over the past five years. We
move to Hold from Buy.
We reduce our earnings by 14-15% for FY12-14F
Post disappointing2QFY12 results, we reduce our earnings by 14%/14%/15% for
FY12F/FY13F/FY14F. This downward revision reflects adjustments we make to our revenue and
EBIT estimates across segments. The sharp drop in power segment margin looks structural to us;
more intense competition coupled with industry overcapacity should continue to hurt the numbers.
Also, slowing demand in the consumer and industrial segments should have a negative impact on
margins, at least in the medium term. We note that to improve its competitive advantage,
company is working to increase the proportion of material sourcing from low cost countries
(presently 43%) and reduce overhead to reduce costs.
Management’s FY12 guidance implies sharp recovery in 2HFY12 and low tax rate
Management maintains its FY12 guidance of 10-12% yoy revenue growth, 8-10% EBITDA margin
and a 15-20% tax rate. Reverse calculations based on the guidance implies 2HFY12 revenue
growth of 14% yoy versus 1HFY12 growth of 9.4% yoy, 2HFY12F EBITDA margin of 11.8% (down
170bp yoy) versus 1HFY12 margin of 7.9% (a decline of 550bp) and a tax rate of 6% for 2HFY12
versus 15% in 2HFY12 – a tall task, in our view, given the current environment.
Balance sheet deteriorates on macro/micro headwinds
At end-1HFY12, consolidated inventory days rose to 62 days of sales versus 50 at end-1HFY11
and 43 days at end-FY11. Debtor days rose to 101 days of sales versus 89 days at end-1HFY11
and 93 days at end-FY11. Net working capital (excluding cash) rose to 51 days of sales versus
30 days at end-1HFY11 and 31 days at end-FY11. Gross debt rose 107% from end-FY11 to
Rs9.4bn, led by funding needs for recent overseas acquisitions and higher working capital
requirements.
Reduce target price to Rs155 (from Rs180) and rating to Hold (from Buy)
Our new DCF-based target price of Rs155 implies a target PE multiple of 13.4x FY13F EPS. PE
multiple expansion from current levels looks difficult till there a is clarity on macro/micro issues.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Post disappointing 2QFY12 results, we reduce our earnings by 14-15% for FY12-14F, a reflection
of structural margin decline across segments. Our new DCF-based target price of Rs155 implies
a target PE of 13.4x FY13E EPS versus the average PE of 17x over the past five years. We
move to Hold from Buy.
We reduce our earnings by 14-15% for FY12-14F
Post disappointing2QFY12 results, we reduce our earnings by 14%/14%/15% for
FY12F/FY13F/FY14F. This downward revision reflects adjustments we make to our revenue and
EBIT estimates across segments. The sharp drop in power segment margin looks structural to us;
more intense competition coupled with industry overcapacity should continue to hurt the numbers.
Also, slowing demand in the consumer and industrial segments should have a negative impact on
margins, at least in the medium term. We note that to improve its competitive advantage,
company is working to increase the proportion of material sourcing from low cost countries
(presently 43%) and reduce overhead to reduce costs.
Management’s FY12 guidance implies sharp recovery in 2HFY12 and low tax rate
Management maintains its FY12 guidance of 10-12% yoy revenue growth, 8-10% EBITDA margin
and a 15-20% tax rate. Reverse calculations based on the guidance implies 2HFY12 revenue
growth of 14% yoy versus 1HFY12 growth of 9.4% yoy, 2HFY12F EBITDA margin of 11.8% (down
170bp yoy) versus 1HFY12 margin of 7.9% (a decline of 550bp) and a tax rate of 6% for 2HFY12
versus 15% in 2HFY12 – a tall task, in our view, given the current environment.
Balance sheet deteriorates on macro/micro headwinds
At end-1HFY12, consolidated inventory days rose to 62 days of sales versus 50 at end-1HFY11
and 43 days at end-FY11. Debtor days rose to 101 days of sales versus 89 days at end-1HFY11
and 93 days at end-FY11. Net working capital (excluding cash) rose to 51 days of sales versus
30 days at end-1HFY11 and 31 days at end-FY11. Gross debt rose 107% from end-FY11 to
Rs9.4bn, led by funding needs for recent overseas acquisitions and higher working capital
requirements.
Reduce target price to Rs155 (from Rs180) and rating to Hold (from Buy)
Our new DCF-based target price of Rs155 implies a target PE multiple of 13.4x FY13F EPS. PE
multiple expansion from current levels looks difficult till there a is clarity on macro/micro issues.
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