Lanco Infratech :4QFY13: Normalized earnings above forecast: Nomura research

4QFY13: Normalized earnings above forecast

4QFY13 normalized EBITDA above/below our/consensus
forecasts…
At INR5.4bn, Lanco’s 4QFY13 normalized EBITDA came in 6% above
our forecast (INR5.1bn), but 4% below consensus (INR5.6bn); we peg
normalized EBITDA = reported EBITDA less prior period component of
[1] revenue received by Griffin Coal on account of retrospective upward
revision in price of coal supplied to Bluewaters (~A$44mn), and [2] ‘cash
compensation’ in certain EPC projects (INR135mn).
….normalized net loss lower than our forecast, magnitude unclear
In the absence of definitive clarity on any one-off tax liability on the
abovementioned prior period items, we peg Lanco’s 4QFY13 normalized
net loss at INR4.3bn (vs. our/consensus forecast at INR4.6bn/INR3.8bn);
reported 4QFY13 loss was INR316mn. Notably, if tax was paid /
provisioned on the prior period items at the applicable corporate tax
rates, normalized net loss could be INR3.2bn, significantly lower (i.e.,
better) than our/consensus forecast.

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Higher contribution from EPC business drives EBITDA surprise
Although normalized net revenues at INR32bn were below our forecast,
revenue mix and margins surprised positively –
 Contribution from the solar EPC business picked up sharply QoQ at
INR1.7bn (vs. our forecast of INR0.5bn and INR14mn in 3QFY13).
Solar EPC order book stood at INR33bn as of 4QFY13 (vs. INR39bn
as of 3QFY13); 50% of the orders are ‘external’.
 Contribution from non-solar EPC business was also significantly above
our forecast. As against our forecast of Lanco’s stand-alone EBITDA
of INR0.8bn (10% margin), the company posted normalized standalone
EBITDA at INR1.7bn (16.8% margin). Ex-solar EPC order book
was INR230bn as of 3QFY13 (vs. INR237bn as of 2QFY13); 17% of
the orders are ‘external’.
 At INR14.8bn, revenues from power generation were in-line with our
forecast; EBITDA from this business segment was ~5% above our
forecast. Amarkantak (Unit-2, 300MW) and Kondapalli-II (366MW) are
currently idle due to unavailability of fuel.
 Contribution from ‘property’ business also surprised positively.

Key balance sheet metrics – stress persists, receivables moderate
 Group net debt-to-equity (including working capital loans of power
SPVs and Griffin Coal acquisition debt) stood at 7.8x as of FY13 vs.
7.7x as of 3QFY13.
 Receivables from state utilities (SEBs) declined to INR29.7bn as of
4QFY13 (vs. INR35.3bn as of 3QFY13), primarily on the back of
payments received from the Uttar Pradesh Government (SEBs).
 Including unpaid dues, debt repayment (excluding INR11.5bn net
current liabilities) over the next 12 months amounts to INR26bn. In the
earnings call, management mentioned that excluding roll-over loans,
long-term debt repayment in FY14 would be ~INR18bn.
Our estimates for Lanco are under review
 We are reviewing our estimates for Lanco. We maintain that there
have been several positive developments for the stock in the past four
months, but not enough to offset the liquidity risk faced by the parent
entity; equity infusion / asset divestment remains critical for
sustainability and execution of its project pipeline.
 The stock trades at 0.5x P/B on Bloomberg consensus forecast for
FY14 and 0.6x reported FY13 P/B.