MARG-Mixed bag; port PAT higher, EPC lower;: Edelweiss

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MARG
Mixed bag; port PAT higher, EPC lower



􀂄 EPC revenues lower, but margins maintained
MARG’s reported revenue, at INR 2.31 bn, was up 12.5%, and PAT, at INR 134
mn, was down 33% Y-o-Y. These were below estimates on account of delay in
EPC execution, though commercial leasing and real estate businesses were stable.
EBITDA margins continued to remain under pressure (down 420bps Y-o-Y), as
expected (11.7% against 12.1% expected), due to higher proportion of external
contracts in revenues vis à vis past quarters. Order book, at INR 28.2 bn, gives
strong visibility for the next few years. During Q2, MARG entered into
agreement/MOU with Valecha Engineering, SREI Infrastructure, and International
Infrastructure Consultants (IIC), to enhance its EPC competence.


􀂄 Port on-track to handle 5.5 MT for FY11; likely upsides to earnings
Karaikal port handled 1.34 MT of cargo during the quarter against 1.17 MT in the
previous quarter, up 15% Q-o-Q. Coal remains the dominant cargo (80%), but
fertilizer cargo is witnessing an uptick post notification from GoI for handling urea
at the port. EBITDA, at INR 275 mn, grew 72% Q-o-Q, on account of increase in
cargo volumes; EBITDA margins improved from 43% to 57% due to the cargo
blend as fertilizers yielded revenues @~INR 430/tonne. With ~2.5 mn tonne
cargo handled so far, we expect 5.5 MT for FY11, while EBITDA margins could
surprise on the positive side against our full year expectation of 45% for FY11.

􀂄 Traction seen in real estate and SEZ businesses
Real estate (commercial & residential) continue to do well with new residential
launches lined-up during the forthcoming quarters near OMR and in Chennai. SEZ
revenue, at INR 353 mn, was flat Q-o-Q. We expect traction in land sale/leasing
activity (with recent MoUs signed up with Exemplarr, Strand Genomics, where
construction has commenced) and new residential launches seen at the SEZ. The
management has guided for higher revenues in H2FY11 due to fresh residential
bookings and higher leasing income.

􀂄 Outlook and valuations: Attractive; maintain ‘BUY’
We remain positive on the company, especially with Karaikal port clocking higher
EBITDA margins than our estimates and SEZ/real estate business being stable,
despite some disappointment in the standalone EPC business. We have reduced
marginally our EPC estimates based on Q2FY11 performance, which also impacted
EPC valuation by INR 14/share. Our revised SOTP stands at INR 361/share. We
maintain ‘BUY’ on the stock.