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A stable quarter
Heightened operational efficiency prevents earnings erosion
EIEL reported slightly subdued revenues at INR8.1bn (down 3% YoY)
vis-à-vis our expectation of INR8.6bn. Operational efficiency though
was the saving grace as the OPM expanded by 290bps to 22.2%, as
there was no trading income booked for the second consecutive
quarter, leading to savings in direct expenses (-517bps YoY).
Consequently, operating profits for the period surged ~12% to
INR1.8bn. Impacted by higher interest (+21.3% YoY) and depreciation
charges (+20.7% YoY), net profits for the period rose by a meagre 4.9%
YoY to INR618mn (though ahead of our estimate of INR554mn).
Unexecuted backlog at INR85bn - 2.2x FY11E revenues
EIEL stands pre-qualified to bid for projects worth INR260bn as on date
(INR60-70bn pertains to the toll and annuity based road BOT projects).
During H1FY11, it bagged a major order worth INR17.2bn pertaining
to the 151kms Bareilly Sitapur road BOT project on NH24, taking its
total asset ownership portfolio to INR51bn across six projects.
Construction work of earlier three projects is on track as the company
eyes collecting INR5.1mn/day in terms of toll and annuity revenues
from these projects from Q1FY12 onwards.
Cut revenue estimates, rating: Roll over to FY12 with TP of INR264
We tone down our revenue estimates for EIEL for FY11 and FY12 by
11% and 10% respectively through the impact of the same on
earnings is not material. The primary reason for revising revenues
downwards is the near term exit from the commodity trading business
by the company. A quality order book, strong project management
skills and a successful transition across the asset ownership business
make us positive on EIEL. However, potential upsides from the current
valuations appear limited vis-à-vis our SOTP based price target. Hence,
we downgrade our recommendation to Accumulate with a revised
price target of INR264.
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