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Results disappoints: Sales for the quarter was flat YoY at Rs10.9bn. Domestic
sales were down 5% YoY and flat QoQ. Strong growth in export (up 14% YoY)
cushioned sales. The Power gen business was down 20% YoY, Industrial business
was down 6% YoY and Auto business was up 50% YoY. The company highlighted
that consistent rise in interest rates has dampened demand, especially in power
generation segment. EBITDA margin was down 380bps YoY and 170bps QoQ to
16.1% (lowest margin in the last ten quarters). Increased commodity prices
(mainly pig iron), unfavourable currency and adverse sales mix (in favour of
smaller engines) led to pressure on margins. Adj. PAT was down 23% YoY to
Rs1.2bn.
Guidance revised downwards: The company had guided for sales growth of 10-
15% which has been downgraded to 5-10%. It has guided further 100bps
reduction in PBT margin (from Q2FY12 levels of 16.7%) as it expects adverse
sales mix in favour of low HP engines to continue for the rest of the year. It
highlighted that if volumes come back and inflation continues at current levels,
then it could see margins improve next year.
Outlook and valuation: The stock is currently trading at 15.4x FY13E earnings.
We have downgraded our estimate for FY12 and FY13 by 18% and 15%,
respectively. Though there might be some near-term pain, we believe the
company is on track to double its turn over the next five years. With investment
in capacity and technology leadership, the company will be able to capitalize
once the market bounces back. Strong balance sheet and cash flow will continue
to support valuations. We maintain our ‘BUY’ rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Results disappoints: Sales for the quarter was flat YoY at Rs10.9bn. Domestic
sales were down 5% YoY and flat QoQ. Strong growth in export (up 14% YoY)
cushioned sales. The Power gen business was down 20% YoY, Industrial business
was down 6% YoY and Auto business was up 50% YoY. The company highlighted
that consistent rise in interest rates has dampened demand, especially in power
generation segment. EBITDA margin was down 380bps YoY and 170bps QoQ to
16.1% (lowest margin in the last ten quarters). Increased commodity prices
(mainly pig iron), unfavourable currency and adverse sales mix (in favour of
smaller engines) led to pressure on margins. Adj. PAT was down 23% YoY to
Rs1.2bn.
Guidance revised downwards: The company had guided for sales growth of 10-
15% which has been downgraded to 5-10%. It has guided further 100bps
reduction in PBT margin (from Q2FY12 levels of 16.7%) as it expects adverse
sales mix in favour of low HP engines to continue for the rest of the year. It
highlighted that if volumes come back and inflation continues at current levels,
then it could see margins improve next year.
Outlook and valuation: The stock is currently trading at 15.4x FY13E earnings.
We have downgraded our estimate for FY12 and FY13 by 18% and 15%,
respectively. Though there might be some near-term pain, we believe the
company is on track to double its turn over the next five years. With investment
in capacity and technology leadership, the company will be able to capitalize
once the market bounces back. Strong balance sheet and cash flow will continue
to support valuations. We maintain our ‘BUY’ rating on the stock.
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