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M acr o h eadwi nds strai n e x ecuti o n …
Hindustan Dorr Oliver declared Q2FY12 results, which were below our
expectations on all fronts. The topline fell 39% YoY to | 149 crore vs. our
estimate of | 208 crore, mainly due to slippages in execution. EBITDA
margins were also disappointing, coming at 7.8% (I-direct estimate:
9.4%). The PAT was at | 2.8 crore, down 87% YoY, against our estimate
of | 5.9 crore. The dent in PAT primarily resulted from increased working
capital requirement and, consequently, higher interest cost.
ƒ Tepid order inflows weaken revenue visibility for FY13
An order backlog at | 1380 crore (implying a book to bill ratio of 1.8x),
coupled with the current macro headwinds, weakens the execution
visibility, going ahead. The company bagged orders worth | 100 crore in
the quarter, declining sharply by 65% YoY. However, the only silver lining
was the company being L1 in bids worth | 620 crore from clients like
UCIL, Bhel, NTPC, etc. However, a delay in order finalisation of the same
will further weaken the revenue visibility. In light of the above concerns
and dismal H1FY12 revenues, we have cut our revenue growth estimate
for FY12E and FY13E by 19% and 17%, respectively (refer Exhibit 6).
• High borrowing costs and stretched working capital to hurt PAT
The strain on the balance sheet got aggravated in H1FY12 as leverage
rose sharply from 0.75x in Q2FY11 to 1.23x in Q2FY12. As a result, debt
rose 76% YoY mainly on the back of increased working capital
requirement, which increased by 39% YoY. Consequently, the interest
outgo almost tripled in Q2FY12 from Q2FY11. Going ahead, we believe a
high interest rate scenario and a difficult macro environment will impact
the profitability growth. Hence, our revised PAT estimates were lower by
31% and 20% for FY12E and FY13E, respectively.
V a l u a t i o n
We believe a weakening macro environment will keep a check on order
inflow growth and, hence, will affect the growth profile of the company. In
such an event, we expect the stock to languish in the medium term. We
value the stock at 7x FY13E EPS to arrive at a fair price of | 37 per share
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
M acr o h eadwi nds strai n e x ecuti o n …
Hindustan Dorr Oliver declared Q2FY12 results, which were below our
expectations on all fronts. The topline fell 39% YoY to | 149 crore vs. our
estimate of | 208 crore, mainly due to slippages in execution. EBITDA
margins were also disappointing, coming at 7.8% (I-direct estimate:
9.4%). The PAT was at | 2.8 crore, down 87% YoY, against our estimate
of | 5.9 crore. The dent in PAT primarily resulted from increased working
capital requirement and, consequently, higher interest cost.
ƒ Tepid order inflows weaken revenue visibility for FY13
An order backlog at | 1380 crore (implying a book to bill ratio of 1.8x),
coupled with the current macro headwinds, weakens the execution
visibility, going ahead. The company bagged orders worth | 100 crore in
the quarter, declining sharply by 65% YoY. However, the only silver lining
was the company being L1 in bids worth | 620 crore from clients like
UCIL, Bhel, NTPC, etc. However, a delay in order finalisation of the same
will further weaken the revenue visibility. In light of the above concerns
and dismal H1FY12 revenues, we have cut our revenue growth estimate
for FY12E and FY13E by 19% and 17%, respectively (refer Exhibit 6).
• High borrowing costs and stretched working capital to hurt PAT
The strain on the balance sheet got aggravated in H1FY12 as leverage
rose sharply from 0.75x in Q2FY11 to 1.23x in Q2FY12. As a result, debt
rose 76% YoY mainly on the back of increased working capital
requirement, which increased by 39% YoY. Consequently, the interest
outgo almost tripled in Q2FY12 from Q2FY11. Going ahead, we believe a
high interest rate scenario and a difficult macro environment will impact
the profitability growth. Hence, our revised PAT estimates were lower by
31% and 20% for FY12E and FY13E, respectively.
V a l u a t i o n
We believe a weakening macro environment will keep a check on order
inflow growth and, hence, will affect the growth profile of the company. In
such an event, we expect the stock to languish in the medium term. We
value the stock at 7x FY13E EPS to arrive at a fair price of | 37 per share
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