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Subdued performance likely
From our mid-cap universe, we expect only Bata India to report a strong set of numbers for
3QFY12. After strong 23.7% growth in revenue in 1HFY12, Sintex Industries is likely to
witness poor project execution and this coupled with higher MTM (mark-to-market) FCCB
losses will exert pressure on valuation. We expect BGR Energy to continue to report weak
performance, while JBF Industries’ profitability may stabilise at a lower level.
BGR Energy: BGR reported all-round de-growth in 1HFY12 due to slowing project execution and a
higher base of FY11. We expect this deceleration to continue in 3QFY12 as well. Revenue may
witness 23.4% YoY decline to Rs9.6bn. The three BoP projects - Marwa, Chandrapur &
Krishnapatnam - are likely to account for a major portion of its revenue. The NTPC bulk tender won
by BGR will not impact FY12 financials as the project is yet to be awarded. On the order inflow
front, BGR has won a 2x300MW EPC contract from TRN Energy worth Rs17bn during the quarter.
We expect operating margin of 13% during 3QFY12, up 130bps YoY, as the revenue composition is
likely to comprise a bigger share of high-margin BoP contracts compared to 3QFY11. However, on
sequential basis, we expect EBITDA margin to fall 130bps. Our EBITDA/PAT estimates are at
Rs1.25bn and Rs595mn, resulting in YoY decline of 15% and 32%, respectively.
JBF Industries: With the falling delta margin of its products stabilising at a lower level, we expect
the company to report flat operating profit QoQ in 3QFY12 and gradually recover from 4QFY12
onwards. On account of sharp demand-supply mismatch, prices of PET film increased 37% to
Rs182/kg in 3QFY11 thereby boosting profitability for the quarter. Hence, YoY comparison is not
possible. We expect its RAK subsidiary to account for 44.4% of revenue and 46.7% of EBITDA on
account of sharp rupee depreciation that should result in translation gains on consolidation. We
expect JBF to report volume growth of 5.1% YoY and 4.9% QoQ for 3QFY12. Higher volume along
with higher realisation and rupee depreciation would drive consolidated revenue by 13.9% YoY and
5.1% QoQ to Rs19,492mn. Delta margins of its various products like chips, POY, films etc were on
the declining mode in 1HFY12. With margins stabilising at a lower level, the company should
maintain its operating profit of Rs2,110mn, flat QoQ, but it should improve from 4QFY12 onwards.
We, expect JBF to incur exchange loss of Rs635mn (Rs385mn forex loss and Rs250mn MTM loss)
which would exert pressure on the bottom line. We expect JBF to report net profit of Rs699mn for
3QFY12, down 8.0% QoQ. Profitability is expected to improve from 4QFY12 and forex losses to
decline sharply from August 2012 onwards, which would provide upside trigger for JBF’s valuation.
Bata India: The company’s net sales increased 23.5% during 9MCY11 and we expect it to maintain
the growth momentum. Going for aggressive retail expansion, it opened 108/68 stores in
CY10/1HCY11, respectively, and supported by a better product mix the net sales should increase
20.8% YoY to Rs4,347mn in 4QCY11 (the company’s financial year ends in December). Bata India
has increased outsourcing of products (with partial imports from countries like Taiwan, Korea,
Malaysia etc), which accounted for 30.6% of sales in CY10. With the rupee depreciating 18.7% in
the past six months, imported goods turned costlier and apart from that lease rental costs remained
at an elevated level due to aggressive retail expansion, thereby exerting pressure on operating
margin by 27bps YoY to 16.2%. However, with the stabilisation of new retail outlets and a hike in
product prices to pass on higher input costs, the margins should bounce back in CY12. As the
company is debt-free and depreciation costs would lag operating profit growth, net profit should
witness strong growth of 19.9% YoY at Rs412mn in 4QCY11.
Sintex Industries: We expect the company to report subdued 3QFY12 numbers for its core business due to weak
project execution by its building products division. However, a depreciating rupee, which increases export revenue
and translated revenue gains of overseas subsidiaries, would provide some cushion. MTM losses on FCCBs would
add to the pain. Net revenue should register moderate growth of 7% YoY to Rs12,692mn, due to execution delay
at monolithic sites and stretched working capital. After witnessing strong 26.9% growth in its building product in
1HFY12, the division is heading for moderation and we expect it to register 3% growth at Rs6.3bn. The company
should report EBITDA margin of 16.5% in 3QFY12, lower by 14bps YoY, on account execution delay and higher
overheads. Operating profit should register a growth of 6.1% YoY to Rs2,088mn. Of the FCCB proceeds
amounting to US$225mn, Sintex has utilised ~US$112mn until 31 March 2011 and out of the balance
~US$113mn, ~US$25mn is in the form of rupee deposits while ~US$88mn lies in an overseas escrow account.
The rupee has depreciated sharply by 8.4% (Rs4.1) from Rs48.97/$ on 30 September 2011 to Rs53.06/$ on 31
December 2011, which should result in MTM losses of ~Rs560mn in 3QFY12 in respect of un-hedged FCCBs
(~$137), thereby exerting pressure on profitability. Reported net profit should show a decline of 53.8% to Rs521mn
in 3QFY12. Adjusted net profit should also decline by 4.2% to Rs1,081mn. Following stretched working capital
cycle, delay in approval for building project sites and weakness in the US and the EU, we expect execution/growth
rate to moderate in 4QFY12/FY13 also and profitability to be under pressure, which should cap valuation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Subdued performance likely
From our mid-cap universe, we expect only Bata India to report a strong set of numbers for
3QFY12. After strong 23.7% growth in revenue in 1HFY12, Sintex Industries is likely to
witness poor project execution and this coupled with higher MTM (mark-to-market) FCCB
losses will exert pressure on valuation. We expect BGR Energy to continue to report weak
performance, while JBF Industries’ profitability may stabilise at a lower level.
BGR Energy: BGR reported all-round de-growth in 1HFY12 due to slowing project execution and a
higher base of FY11. We expect this deceleration to continue in 3QFY12 as well. Revenue may
witness 23.4% YoY decline to Rs9.6bn. The three BoP projects - Marwa, Chandrapur &
Krishnapatnam - are likely to account for a major portion of its revenue. The NTPC bulk tender won
by BGR will not impact FY12 financials as the project is yet to be awarded. On the order inflow
front, BGR has won a 2x300MW EPC contract from TRN Energy worth Rs17bn during the quarter.
We expect operating margin of 13% during 3QFY12, up 130bps YoY, as the revenue composition is
likely to comprise a bigger share of high-margin BoP contracts compared to 3QFY11. However, on
sequential basis, we expect EBITDA margin to fall 130bps. Our EBITDA/PAT estimates are at
Rs1.25bn and Rs595mn, resulting in YoY decline of 15% and 32%, respectively.
JBF Industries: With the falling delta margin of its products stabilising at a lower level, we expect
the company to report flat operating profit QoQ in 3QFY12 and gradually recover from 4QFY12
onwards. On account of sharp demand-supply mismatch, prices of PET film increased 37% to
Rs182/kg in 3QFY11 thereby boosting profitability for the quarter. Hence, YoY comparison is not
possible. We expect its RAK subsidiary to account for 44.4% of revenue and 46.7% of EBITDA on
account of sharp rupee depreciation that should result in translation gains on consolidation. We
expect JBF to report volume growth of 5.1% YoY and 4.9% QoQ for 3QFY12. Higher volume along
with higher realisation and rupee depreciation would drive consolidated revenue by 13.9% YoY and
5.1% QoQ to Rs19,492mn. Delta margins of its various products like chips, POY, films etc were on
the declining mode in 1HFY12. With margins stabilising at a lower level, the company should
maintain its operating profit of Rs2,110mn, flat QoQ, but it should improve from 4QFY12 onwards.
We, expect JBF to incur exchange loss of Rs635mn (Rs385mn forex loss and Rs250mn MTM loss)
which would exert pressure on the bottom line. We expect JBF to report net profit of Rs699mn for
3QFY12, down 8.0% QoQ. Profitability is expected to improve from 4QFY12 and forex losses to
decline sharply from August 2012 onwards, which would provide upside trigger for JBF’s valuation.
Bata India: The company’s net sales increased 23.5% during 9MCY11 and we expect it to maintain
the growth momentum. Going for aggressive retail expansion, it opened 108/68 stores in
CY10/1HCY11, respectively, and supported by a better product mix the net sales should increase
20.8% YoY to Rs4,347mn in 4QCY11 (the company’s financial year ends in December). Bata India
has increased outsourcing of products (with partial imports from countries like Taiwan, Korea,
Malaysia etc), which accounted for 30.6% of sales in CY10. With the rupee depreciating 18.7% in
the past six months, imported goods turned costlier and apart from that lease rental costs remained
at an elevated level due to aggressive retail expansion, thereby exerting pressure on operating
margin by 27bps YoY to 16.2%. However, with the stabilisation of new retail outlets and a hike in
product prices to pass on higher input costs, the margins should bounce back in CY12. As the
company is debt-free and depreciation costs would lag operating profit growth, net profit should
witness strong growth of 19.9% YoY at Rs412mn in 4QCY11.
Sintex Industries: We expect the company to report subdued 3QFY12 numbers for its core business due to weak
project execution by its building products division. However, a depreciating rupee, which increases export revenue
and translated revenue gains of overseas subsidiaries, would provide some cushion. MTM losses on FCCBs would
add to the pain. Net revenue should register moderate growth of 7% YoY to Rs12,692mn, due to execution delay
at monolithic sites and stretched working capital. After witnessing strong 26.9% growth in its building product in
1HFY12, the division is heading for moderation and we expect it to register 3% growth at Rs6.3bn. The company
should report EBITDA margin of 16.5% in 3QFY12, lower by 14bps YoY, on account execution delay and higher
overheads. Operating profit should register a growth of 6.1% YoY to Rs2,088mn. Of the FCCB proceeds
amounting to US$225mn, Sintex has utilised ~US$112mn until 31 March 2011 and out of the balance
~US$113mn, ~US$25mn is in the form of rupee deposits while ~US$88mn lies in an overseas escrow account.
The rupee has depreciated sharply by 8.4% (Rs4.1) from Rs48.97/$ on 30 September 2011 to Rs53.06/$ on 31
December 2011, which should result in MTM losses of ~Rs560mn in 3QFY12 in respect of un-hedged FCCBs
(~$137), thereby exerting pressure on profitability. Reported net profit should show a decline of 53.8% to Rs521mn
in 3QFY12. Adjusted net profit should also decline by 4.2% to Rs1,081mn. Following stretched working capital
cycle, delay in approval for building project sites and weakness in the US and the EU, we expect execution/growth
rate to moderate in 4QFY12/FY13 also and profitability to be under pressure, which should cap valuation.
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