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Lanco Infratech (LANCI)
Utilities
Operational challenges in power compensated by construction segment. Lanco’s
operational challenges in the power and coal business were compensated by higher
contribution from external projects executed by the construction business. However,
higher interest cost, elimination of profits and forex losses marred reported profits.
Operational performance notwithstanding, resolution of contractual issues and
litigations is key to stock performance. Maintain BUY with revised PT of Rs39/share.
Robust construction performance counters weakness in power and coal business
LITL reported consolidated revenues of Rs18.9 bn (-8% yoy, -3% qoq), operating profit of Rs4.4
bn (6% yoy, -9% qoq) and net loss of Rs205 mn against our estimate of Rs16.5 bn, Rs4.7 bn and
Rs513 mn, respectively. Operational weakness in power business was offset by robust construction
revenues and margins registering a strong 39% sequential increase in external revenues and 750
bps margins expansion (external EBITDA). Power segment disappointed with lower PLFs at
Amarkantak II (54%) and Kondapalli I (39%) during the quarter while Griffin coal registered an
operating loss of Rs0.5 bn (excluding forex losses) primarily on account of lower revenues.
Reported loss of Rs2.6 bn includes total forex loss of Rs2.9 bn. We discuss the performance in
detail in a subsequent section.
Clarity on fuel sourcing and resolution of pending litigations key to stable operations
LITL’s significant underperformance is reflective of a combination of general industry-level macro
concerns on fuel availibility and financial health of SEBs along with company-specific concerns on
accounting standards, balance sheet stress and problematic acquisitions along with hosts of
litigations and disputes. While dependence on domestic coal from Coal India as well as gas
supplies from Reliance Industries has further constrained optimum utilizations of operational
power assets, frequent changes in accounting policy, litigations and continual earnings
disappointment have further dampened investor confidence.
We note that LITL’s performance in near term is contingent upon (1) clarity on fuel sourcing for
operational as well as under-construction projects and (2) resolution of litigations that have been
plaguing the company. Refer our note dated August 16, 2011 titled ‘Operational performance
struggles through, resolution of litigations key’ for a more detailed analysis of LITL’s woes.
Maintain BUY with a revised target price of Rs39/share
We maintain our BUY rating with a revised target price of Rs39/share (previously Rs45/share). Our
SOTP-based target price now comprises—(1) DCF-equity of power project portfolio at Rs42/share
and (2) construction business valued at Rs8/share at EV/EBITDA of 5X on FY2013E EBITDA.
Standalone net debt reduce Rs11/share from our SOTP.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lanco Infratech (LANCI)
Utilities
Operational challenges in power compensated by construction segment. Lanco’s
operational challenges in the power and coal business were compensated by higher
contribution from external projects executed by the construction business. However,
higher interest cost, elimination of profits and forex losses marred reported profits.
Operational performance notwithstanding, resolution of contractual issues and
litigations is key to stock performance. Maintain BUY with revised PT of Rs39/share.
Robust construction performance counters weakness in power and coal business
LITL reported consolidated revenues of Rs18.9 bn (-8% yoy, -3% qoq), operating profit of Rs4.4
bn (6% yoy, -9% qoq) and net loss of Rs205 mn against our estimate of Rs16.5 bn, Rs4.7 bn and
Rs513 mn, respectively. Operational weakness in power business was offset by robust construction
revenues and margins registering a strong 39% sequential increase in external revenues and 750
bps margins expansion (external EBITDA). Power segment disappointed with lower PLFs at
Amarkantak II (54%) and Kondapalli I (39%) during the quarter while Griffin coal registered an
operating loss of Rs0.5 bn (excluding forex losses) primarily on account of lower revenues.
Reported loss of Rs2.6 bn includes total forex loss of Rs2.9 bn. We discuss the performance in
detail in a subsequent section.
Clarity on fuel sourcing and resolution of pending litigations key to stable operations
LITL’s significant underperformance is reflective of a combination of general industry-level macro
concerns on fuel availibility and financial health of SEBs along with company-specific concerns on
accounting standards, balance sheet stress and problematic acquisitions along with hosts of
litigations and disputes. While dependence on domestic coal from Coal India as well as gas
supplies from Reliance Industries has further constrained optimum utilizations of operational
power assets, frequent changes in accounting policy, litigations and continual earnings
disappointment have further dampened investor confidence.
We note that LITL’s performance in near term is contingent upon (1) clarity on fuel sourcing for
operational as well as under-construction projects and (2) resolution of litigations that have been
plaguing the company. Refer our note dated August 16, 2011 titled ‘Operational performance
struggles through, resolution of litigations key’ for a more detailed analysis of LITL’s woes.
Maintain BUY with a revised target price of Rs39/share
We maintain our BUY rating with a revised target price of Rs39/share (previously Rs45/share). Our
SOTP-based target price now comprises—(1) DCF-equity of power project portfolio at Rs42/share
and (2) construction business valued at Rs8/share at EV/EBITDA of 5X on FY2013E EBITDA.
Standalone net debt reduce Rs11/share from our SOTP.
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