19 November 2010

McNally Bharat Engineering – 2QFY2011 Result Update-Angel Broking

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McNally Bharat Engineering – 2QFY2011 Result Update

Angel Broking maintains a Buy on McNally Bharat Engineering with a Target Price of Rs368.

McNally Bharat Engineering (MBE) posted strong set of numbers for 2QFY2011
on standalone basis. The company’s consolidated order book stood at `4,518cr
(2.5x FY2010 consolidated revenues) at the end of 2QFY2011 led by the power
sector, which lends high revenue visibility. We maintain a Buy on the stock.

Strong execution-led growth: For 2QFY2011, MBE posted yoy sales growth of
31%. EBITDA grew 29% yoy, which was restricted due to the marginal decline in
EBITDA margin, which came in at 5.4% (5.5%). Bottom-line surged 128%
primarily on the back of the 10x jump in other income to `4cr during the quarter.
Subsidiary, McNally Sayaji (MSE) posted disappointing performance for the
quarter clocking mere 1% yoy growth in sales, while PAT declined by a substantial
39% to `7cr.


Outlook and Valuation: We believe that an improving economic scenario, the
continuous government focus on infrastructure spend and a pick-up in private
capex augurs well for the companies providing EPC solutions for the core sectors
of the economy. Hence, over FY2010-12, we estimate the company to register a
CAGR of 32% and 25% in sales and profit, respectively. However, we have
revised our sales and EBITDA margin estimates downwards to factor in MSE’s
poor 2QFY2011performance and low EBITDA margin posted by MBE for the
quarter. At `239, the stock is available at attractive valuations of 9.1x FY2012E
earnings and 4.8x FY2012E EV/EBITDA. Hence, we maintain a Buy on the stock,
with a revised Target Price of `368 (`406).

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