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Lanco Infratech (LNIFF, Buy)
Bear case: What can go wrong?
Slowdown in execution for power projects, currently under construction
leading to fall in E&C revenues by 10% (current o/bk at 3.2x FY12E sales).
No recovery of loss currently being incurred at 1.2GW regulated Udupi plant
through higher than regulated two-part tariff (RoE of 15.5%)
Lower coal availability leading to drop in the PLF of the power plants
(assumed 100bps decline)
Higher coal price (by Rs100/t or by 7-11% for different plants) not entirely
recoverable as 30% of sales is on competitive bid for FY13/14E and 20/24%
of sales on merchant basis for FY13/14E. About 20-35% of the coal would be
procured through expensive e-auction route (2-2.5x linkage price).
Higher interest rate by 50bps as leverage is amongst the highest vs peers
and rupee depreciate to 52 /USD for FY12/13E.
Consequently, we estimate earnings decline of 73% in FY13E to Rs830mn.
Base case: Strong capacity growth
A 2.25x jump in power volume over FY12-14E to 29.1bn units by FY14E as
capacity rise to 5.3GW by FY14E (2.1GW in FY11). Shift to long-term sales
(75% in FY14E vs 44% in FY11) reducing earnings volatility.
Fall in price for coal exports by 10-18% for FY13/14E on revised BofAML
estimates. Overall, we estimate profit of Rs3bn in FY13E (-16% change).
Lower PO to Rs24 (earlier Rs29), on lower E&C multiple at 7.5xFY13E.
Risk-reward: Balanced
In bear case, we expect stock to trade at Rs12/share (P/BV of 0.6x FY13E).
In base case, we expect stock to trade at Rs24/share offering 92% potential
upside (P/BV of 1.2xFY13E).
Overall, the risk-reward appears balanced on cheap valuation, but overhang
of potential liability on coal mine litigation in Australia remains. Amongst the
highest promoter pledging at 54.2% and potential equity dilution risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lanco Infratech (LNIFF, Buy)
Bear case: What can go wrong?
Slowdown in execution for power projects, currently under construction
leading to fall in E&C revenues by 10% (current o/bk at 3.2x FY12E sales).
No recovery of loss currently being incurred at 1.2GW regulated Udupi plant
through higher than regulated two-part tariff (RoE of 15.5%)
Lower coal availability leading to drop in the PLF of the power plants
(assumed 100bps decline)
Higher coal price (by Rs100/t or by 7-11% for different plants) not entirely
recoverable as 30% of sales is on competitive bid for FY13/14E and 20/24%
of sales on merchant basis for FY13/14E. About 20-35% of the coal would be
procured through expensive e-auction route (2-2.5x linkage price).
Higher interest rate by 50bps as leverage is amongst the highest vs peers
and rupee depreciate to 52 /USD for FY12/13E.
Consequently, we estimate earnings decline of 73% in FY13E to Rs830mn.
Base case: Strong capacity growth
A 2.25x jump in power volume over FY12-14E to 29.1bn units by FY14E as
capacity rise to 5.3GW by FY14E (2.1GW in FY11). Shift to long-term sales
(75% in FY14E vs 44% in FY11) reducing earnings volatility.
Fall in price for coal exports by 10-18% for FY13/14E on revised BofAML
estimates. Overall, we estimate profit of Rs3bn in FY13E (-16% change).
Lower PO to Rs24 (earlier Rs29), on lower E&C multiple at 7.5xFY13E.
Risk-reward: Balanced
In bear case, we expect stock to trade at Rs12/share (P/BV of 0.6x FY13E).
In base case, we expect stock to trade at Rs24/share offering 92% potential
upside (P/BV of 1.2xFY13E).
Overall, the risk-reward appears balanced on cheap valuation, but overhang
of potential liability on coal mine litigation in Australia remains. Amongst the
highest promoter pledging at 54.2% and potential equity dilution risk.
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