BUY Jyoti Structures: Target Price `59 :Angel Broking

Jyoti Structures (Jyoti)’s revenues for 1QFY2013 came in line with our expectations
at `654cr, up 2.5% yoy. However the company disappointed on the margins
front; the EBITDA came in at `64cr, 5.3% lower than our expectation. Jyoti’s
revenue growth continued to be dismal, consistent with its performance over the
past few quarters. The EBITDA margin contracted by 120bps on account of the
tough competition prevalent in the sector and stood at 9.8% for the quarter. We
expect the company to continue to operate at these levels over the coming
quarters. The interest cost was lower than expected and it declined by 16% qoq.
However the company’s interest coverage multiple remained under stress,
declining from 2.6x in 1QFY2012 to 1.9x presently. The other income was also
lower than expected leading to a dismal bottom-line. The PAT came in at `17cr,
declining 33.7% yoy and 18.8% below our expectations. On the back of cheap
valuations we maintain our Buy rating on the stock.

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Order flows remain stable: The Power Grid Corporation of India Ltd (PGCIL)
order flow is expected to retain traction over the coming quarters; we therefore
see order inflows to remain stable. Jyoti’s order backlog stood at `4,600cr up
2.9% yoy. However the company’s order coverage has been declining over the
past few quarters. Its order backlog was spread across transmission (55%),
substation (18%) and distribution (27%) segments. Client-wise, the backlog mainly
constituted of orders from PGCIL (33%), West Bengal (16%), Maharashtra (14%),
Madhya Pradesh (7%) and the private sector (5%).
Outlook and Valuation: We maintain our revenue and order inflow estimates;
however, we reduce our margin estimates leading to a decline of 3.2% and 2.7%
for EBITDA and 20% and 2.5% at the PAT level for FY2013 and FY2014
respectively. The stock is currently trading at 2.9x on our FY2014E EPS. We assign
a multiple of 4.5x (~33% discount to KEC’s multiple) to arrive at a target price of
`59. We maintain our Buy recommendation on the stock.


Investment arguments
Growth opportunity on cards: Globally the thumb rule entails that for every rupee
invested in generation, an equivalent amount is to be invested in transmission and
distribution (T&D). However, India has spent only 50%, thus creating a huge
opportunity for players in the T&D space. PGCIL has envisaged a T&D capex of `1
lakh cr for the 12th plan, 55% of which is expected to be deployed in transmission
and substation projects, thus providing an array of opportunities to Jyoti, given its
strong foothold in the T&D segment.
Diversification to gradually materialize: Jyoti has been actively tapping the
overseas markets by entering into JVs in South Africa and the Gulf. In addition, the
company recently forayed into the US by setting up a transmission tower plant
(revenue potential of ~`340cr annually - @100% capacity utilization). We believe
these ventures will benefit the company in the long run, thereby insulating it from
domestic headwinds.
Outlook and valuation: We maintain our revenue and order inflow estimates;
however reduce our margin estimates leading to a decline of 3.2% and 2.7% for
EBITDA and 20% and 2.5% at the PAT level for FY2013 and FY2014 respectively.