Ramky Infrastructure -Growth momentum intact; sound balance sheet; Buy:: Anand Rathi

Ramky Infrastructure - conference call transcript (Edelweiss -PDF link)

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Please find enclosed the transcript of the conference call with Ramky Infrastructure, held on 17th February, 2012.

Ramky Infrastructure - conference call transcript-17-Feb-12

DLF, Banks, L & T, , Philips Carbon Black, CESC, Selan, 3i Infotech, Ramky, PTC :: Reader Technical Queries:: Business Line

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Please discuss the prospects of DLF.

Jyoti Majhi

DLF (Rs 180): DLF could not really recover from the bludgeoning received in the previous market crash when it fell from Rs 1,225 to Rs 124.

The recovery that followed retraced about one-third of the decline only. This structural decline resumed from the peak of Rs 520 recorded in October 2009.

Year 2011 was also pretty difficult with the stock losing 36 per cent this year. It has closed below the critical medium-term support at Rs 275. Next long-term support for the stock is at Rs 140 and Rs 124.

Investors need to divest their holding in this stock if it declines below Rs 170.

Resistances in the months ahead would be at Rs 310 and Rs 392. But long-term outlook will turn positive only on close above Rs 545.

Subsequent targets are Rs 673 and Rs 807. The stock could remain in the zone between Rs 125 and Rs 550 over the next two years.

I would like to buy Bank Nifty. At what price should I buy it?

Ramanuj Marda

Benchmark Bank BEES (Rs 802.1): Exchange traded fund (ETF) on bank stocks is the best way for investors to take an exposure to this sector.

Benchmark Bank BEES is moving down since last October when it recorded the peak of Rs 1,484. This decline has pulled the ETF close to its critical medium-term support at Rs 780.

There are a couple of supports just below at Rs 700 and Rs 650.

Investors can buy the fund in declines as long as it trades above Rs 650.

If this level is penetrated, the slide can accelerate to pull the ETF to March 2009 trough at Rs 335.

There can be a rally to Rs 1,050 or Rs 1,220 in the months ahead. Investors with short to medium-term perspective can divest their holding at either of these hurdles.

Long-term view will turn positive once the ETF moves above the second resistance.

I would like to buy shares of Larsen & Toubro. Please advise on the price range to buy it?

Vishwanath Hadli

Larsen & Toubro (Rs 995.1): Larsen & Toubro was devastated in the September quarter with the stock losing 36 per cent in this period.

The stock is trading well below the key medium-term support at Rs 1,200.

It has also closed the gap that was formed in May 2009.

That said, the stock has psychological support at Rs 1,000.

This is also the floor of the gap formed after the 2009 elections.

Investors with a greater penchant for risk can buy the stock at current levels or in declines with stop at Rs 870.

Breach of this level can drag the stock to the 2009 low at Rs 556.

The short- as well as medium-term trends in the stock are currently down and it is not displaying any inclination to reverse higher.

Should there be an upward reversal from these levels, short-term resistances will be at Rs 1,266 and then Rs 1,450.

Investors with short- to medium-term perspective can divest their holding if the stock reverses lower from either of these levels.

Medium-term view will turn positive only on close above Rs 1,450.

Subsequent resistances are Rs 1,600 and Rs 1,745.

I am holding shares of Phillips Carbon Black purchased at Rs 140 and 3i Infotech at Rs 45. Please advise on future course of action.

Siva Prasad

Phillips Carbon Black (Rs 86.4): This stock is dropping like a stone since mid-November. This decline has pulled the stock well below the medium-term trend deciding level at Rs 109.

Next support on the charts is at Rs 56 and this can now act as stop-loss for investors who are still holding the stock. Next long-term support is way off at Rs 24.

Investors with lower risk appetite can sell the stock at this juncture and consider re-entry once it closes above Rs 107.

Key medium-term hurdle is however at Rs 160. Next targets are Rs 180 and Rs 250.

3i Infotech (Rs 11.7): 3i Infotech also took it on the chin in 2011, collapsing from Rs 60 to Rs 12, loss of 80 per cent. The stock has also declined below its long-term trough at Rs 25.

It is difficult to tell where this downward spiral will halt. Any rally from hereon will face strong hurdle at Rs 25. Investors can switch out of this stock and consider buying it again only on a firm weekly close above Rs 25.

Medium-term view will turn positive only on a close above Rs 52.

I would like to know the prospects of Ramky Infrastructure.

Chandrasekkar

Ramky Infrastructure (Rs 205.9): This stock does not have sufficient history to enable us to come to a conclusion on its long-term prospects. But it is currently trading close to its life-time low.

That the stock is unable to break the sequence of lower troughs and peaks since its listing also implies that the stock is in a long-term down trend.

There is no semblance of reversal in either short- or medium-term time-frames. Investors with lower risk appetite can switch out of this stock and consider re-investment on a weekly close above Rs 250.

Next hurdles for the stock are at Rs 330 and Rs 360.

Please discuss the medium- and long-term out look of PTC and Selan Exploration.

A Parameswaran

PTC India (Rs 38.8): The long-term trading band for PTC is between Rs 40 and Rs 200. The stock is vacillating in this band since 2004. The stock is currently near the floor of this long-term trading zone.

Its life-time low of Rs 31 recorded in April 2004 should serve as the next long-term support and the stop-loss for investors.

Investors can continue to hold on to the stock since a reversal from here has the potential to take the stock all the way back to Rs 150 or even Rs 200. Medium-term targets on an upward reversal are Rs 80 and Rs 108.

The ceiling between Rs 150 and Rs 200 will continue to act as an obstacle for long-term uptrends.

Selan Exploration Technology (Rs 229): Selan Exploration is also southward bound since the beginning of this year. The stock is currently ruling at its 52-week low. That said, the long-term trend in the stock continues to be up.

It is still trading above its long-term trend deciding level of Rs 216. Investors can continue to hold the stock as long as it trades above this level.

Breach of this level will drag the stock to Rs 140, Rs 118 or Rs 90. Medium-term resistances will be at Rs 300 and Rs 350. Key long-term resistance is at Rs 425.

What does the technical chart say about CESC? Can I enter at current level of 204?

Shankar Mayuram

CESC (Rs 203.4): The long-term uptrend that began from January 2008 peak continues to be in force in CESC.

The stock is currently nearing its long-term base at Rs 165 recorded in October 2008. Investors can continue to hold the stock as long as it holds above this level.

Resistances for the medium-term will be at Rs 276 and Rs 375. Long-term trend will however turn positive only on close above Rs 500.

Ramky Infrastructure - Top pick in mid-cap construction::Nomura research,

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Ramky Infrastructure- Top pick in mid-cap construction
Higher growth, stronger cash flow and balance sheet differentiate it from peers


Action: Top pick in mid-cap construction space, financial
performance expected to be better than peers; maintain BUY
We believe Ramky is one of the best mid-cap construction players in
India, with revenue growth (20-25% vs peers’ 5-12%) and ROE (18-19%
vs 4-8%) exceeding our forecasts for peers for FY12-13F. Ramky has a
robust and well-diversified order book (backlog ratio at 4x as of end-
FY11), providing strong visibility for near- to medium-term revenue.
Focus on execution and management of receivables; low capital
intensity of developer business ensures better balance sheet
Ramky’s focus on execution and management of receivables has helped
control working capital, in our view. Its built, operate and transfer (BOT)
portfolio is a good balance of projects of low capital involvement with early
cycle cash flows and those with higher capital investment. The equity
component is only ~9% of BOT project cost, and equity invested to date is
only 24% of net worth (29-42% for peers). We believe future equity
investment can be met through internal accruals. Parent net debt/equity of
0.65x, (vs ~1.0x for peers), presents little equity dilution risk in the medium
term, in our view.
Catalysts: Strong, sustained financial performance as reflected in
quarterly results; management delivering on guidance
Valuation: Attractive considering lower risk than peers
Our PT of INR450 provides upside of 112% from current levels. The stock
is trading at an adjusted FY13F EV/EBITDA (adj for subs) of 3.54x vs our
estimate 5.16x average for mid-cap peers, which we believe is attractive
considering Ramky’s lower risk profile.


The stock is trading at an adjusted FY13F EV/EBITDA (adj for subs) of 3.54x vs 5.16x
average for mid-cap peers under our coverage.
We believe the stock will re-rate; strong, sustained financial performance to be
catalyst
We believe the stock could re-rate on strong, sustained financial performance as
reflected thus far in the quarterly results. As reported, numbers continue to exhibit better
growth and ROE than those of its peers, and thus we believe the stock should trade at a
higher multiple. The stock has been listed only for ~10 months, and as management
delivers strong financial performance quarter after quarter, we think the stock will
eventually trade closer to our target multiple of 10x.
Risks to our view and price target
CBI investigation on certain investments made by the Ramky Group: The Central Bureau
of Investigation (CBI), at the direction of the Andhra Pradesh High Court, is investigating
certain investments made by some companies in firms owned by Y S Jaganmohan
Reddy, Member of Parliament and son of ex-Chief Minister of Andhra Pradesh, Y S
Rajasekhar Reddy. The Ramky group is one such investor being probed. (Source:
Deccan Herald, 18th July 2011, ‘CBI to issue notices to investors in Jagan’s firms’)
Higher-than-expected slowdown in order inflows could adversely impact earnings: We
build in order inflows of INR50bn in FY12F in line with the inflows in FY11. If order
inflows are lower, it could adversely impact revenues and earnings in FY13F, in our view.
Our analysis indicates a revenue growth range of 15-30% for FY13F for order inflows
ranging from INR30-65bn in FY12.
Execution delays would impact revenue growth: Execution delays due to issues such as
land acquisition, environmental clearances and inadequate client preparedness could
depress revenue growth.
Further rise in interest cost could depress earnings: We have built in an increase of
100bps in average interest costs in FY12F vs FY11. Any increase beyond this could
adversely impact earnings and valuation. We estimate that a 50bp increase in interest
rates would reduce adjusted profit by ~1%.
Deterioration in working capital: A delay in payments from clients could result in
deterioration of working capital, leading to higher debt and interest costs, resulting in
lower profits.
Increase in risk premium could lead to lower valuations: Any increase in the risk premium
for the company on account of macro or company-specific concerns could lead to lower
valuations.
Overhang of sale of locked shares: Around 11% of Ramky’s outstanding shares have a
lock-in period of one year from the IPO. The lock-in expires in Oct 2011. There is a
possibility that investors would sell the shares after the lock-in period ends, which could
put some pressure on stock price. On the positive side, though, this would increase the
trading liquidity on the stock.

Ramky Infrastructure: Target Price (Rs.) 366 Upside 23%: Greshma

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Executive Summary Ramky Infrastructure Limited (RIL), the flagship of Ramky Group, is an integrated infrastructure construction & development management company in India with strategic emphasis on the PPP approach. RIL is currently executing over 200 projects in various segments viz. Water and Waste Water, Buildings, Irrigation, Power Transmission and Distribution, Roads and Bridges, and Industrial Construction projects valued over Rs 16,500 crore, across 22 States and two Union Territories in India making it a diversified national player.
Concerns Highly working-capital-intensive operations leading to average capital structure Fragmentation in the infrastructure industry Higher dependence on government spending Intense competition in the construction business other than the water & waste-water segment Execution Capability for BOT road business being a new entrant. Slowdown in awarding of the projects.
Key Investment considerations Strong order book provides visibility over long term Diversification – Sectoral & geographical presence BOT assets to be cash remunerative Strong presence in Waste water Segment Increasing spend on Infrastructure projects

Ramky Infrastructure – Buy:: Business Line

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Investors with a medium-term perspective can consider buying the stock of infrastructure constructor and developer Ramky Infrastructure, taking advantage of price declines post-listing. The company has a well-diversified order book of Rs 12,200 crore (5.6 times the consolidated FY-10 revenues). This will help tide over any sluggishness in near-term order inflow, a phenomenon witnessed by other construction contractors which have had to contend with limited order flows. An average execution period of 30 months for the company's orders also offers near-term earnings visibility. At Rs 329, the stock trades at a reasonable 10 times estimated consolidated per-share earnings for FY-12. Valuations are at a discount compared to peers such as CCCL and Madhucon Projects. Water and waste management and irrigation projects, where the company has a strong presence, offer superior margins and make up the bulk (41 per cent) of the company's order book. Urban development schemes of the Government offer vast scope for orders in this segment. Road projects account for 33 per cent of the order book followed by residential and commercial buildings at 16 per cent and industrial projects at 10 per cent. This diversified portfolio mitigates risks of segment concentration and allows flexibility to make the most of opportunities in various segments. Ramky undertakes projects on an engineering, procurement, construction and lump-sum basis, while also executing projects as a developer. It has completed road and residential projects as well as an SEZ and industrial parks, a few in partnership with other players. Its developer status offers better margins than a pure-play contractor and a platform to scale up order sizes. Average order size improved from Rs 31 crore in 2008 to about Rs 100 crore now. Geographically too, the company moved away from a focus on Andhra Pradesh to a more diversified presence. It recently secured a Rs 1,101-crore NHAI order with a Chinese company on a development basis in Jammu & Kashmir. It has also moved overseas, securing an order to construct an SEZ for Rs 380 crore in Gabon, West Africa. The six months ended September 2010 saw the company's consolidated revenues increase 35 per cent, while net profit expanded 50 per cent on controls over interest costs and depreciation. Margins have held at 17 per cent at the operating level and 7 per cent at the net level. However, current debt-equity ratio is at 1.2 times but with more development projects in its fold, the ratio is likely to go up, pressuring margins to some extent.

Bhavana Acharya

BL Research Bureau

IPO--Ramky Infrastructure allotment details

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Ramky Infrastructure Limited IPO subscription details

RAMKY INFRASTRUCTURE LTD

Total Issue Size	10947294
Total Bids Received	31621464
Total Bids Received at Cut-off Price	3096856
No. of times issue is subscribed	2.89

Sr.No.	Category	No.of shares offered/reserved	No. of shares bid for	No. of times of total meant for the category
1	Qualified Institutional Buyers (QIBs)	5712727	25839842	4.52
1(a)	Foreign Institutional Investors (FIIs)		13937182
1(b)	Domestic Financial Institutions(Banks/ Financial Institutions(FIs)/ Insurance Companies)		9113482
1(c)	Mutual Funds		1602650
1(d)	Others		1186528
2	Non Institutional Investors	1308641	1893500	1.45
2(a)	Corporates		1650964
2(b)	Individuals (Other than RIIs)		242536
2(c)	Others		0
3	Retail Individual Investors (RIIs)	3925926	3888122	0.99
3(a)	Cut Off		3096856
3(b)	Price Bids		791266

Updated as on 23 September 2010 at 1830 hrs