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Near-term issues may mask improving business trends for a while. 3QFY15 results do not bode well for near-term performance as: (1) backlog is down 15% yoy (delays in domestic orders awards; currency plays spoilsport for overseas), (2) rework-related losses over the next few quarters will mask improving margin trends overseas (key entities are making EBITDA profit) and (3), benefit of recent automation/systems orders (now at 40% of overseas backlog) will take time to reflect in business. We bake into our estimates (1) stricter estimates for overseas power and non-consumer domestic businesses, and (2) swing in Euro-INR rates. TP revised to `200 from `210.
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Ordering for MEA and Europe covers up for sharp decline in India; backlog down 15% yoy Overall ordering in 3QFY15 at `24 bn is down 8% yoy. Over 9MFY15, ordering is marginally up by 2.8%, with strong growth in overseas ordering (MEA, Europe) masking the 14% yoy decline in orders from India. This has led to a 15% yoy decline in backlog to `86.6 bn with (1) weak domestic backlog (`35 bn, down 15% yoy, flat qoq) that should improve in the coming quarters, and (2), overseas backlog correcting (`52 bn, down 15% yoy) partly on currency impact (down 9% yoy). Re-work related losses in Hungary may mask improving margin trends for the next few quarters Overseas EBITDA loss of `107 mn includes a loss of `640 mn related to a re-work of a specific large order (€17 mn size). Such losses are related to orders transferred to Hungary from Belgium and will continue for another two quarters. The re-work-related losses are limited to Hungary and will eventually phase out (€70 mn of breakeven business, which the facility used to exceed before the business shifted from Hungary). Apart from €4 mn EBITDA loss from Hungary for 3QFY15, other entities reported a sharp reduction in losses (Canada –1.4 mn dollar loss) or reported positive financials (Belgium, Power systems US). Automation/ systems now at ~40% of overseas backlog; will take time to reflect in business Automation and systems now comprise about 38% of the company’s `52-bn overseas backlog. Both these segments have recorded recent large order wins and a significant contribution from them to revenues might be a little back-ended (possibly from 2HFY16). 3QFY15: Sharp decline in exports, write-down of tax provisions and re-work losses mar results Weakness in consolidated revenues (`33.3 bn, flat yoy, 5% below estimate) was driven by a sharp decline in power exports (halved yoy to `1.3 bn). EBITDA losses overseas led to a 10% yoy decline in EBITDA. Weak other income and write-down on Canadian deferred tax liability led to a small PAT (`52 mn). We revise estimates to `3.9, `7.7 and `11.8 from `5.7 `9.2 and `13.1 for FY2015-17E. We build slow recovery in overseas margin while building modest growth for non-consumer domestic business.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily04022015rq.pdf
Near-term issues may mask improving business trends for a while. 3QFY15 results do not bode well for near-term performance as: (1) backlog is down 15% yoy (delays in domestic orders awards; currency plays spoilsport for overseas), (2) rework-related losses over the next few quarters will mask improving margin trends overseas (key entities are making EBITDA profit) and (3), benefit of recent automation/systems orders (now at 40% of overseas backlog) will take time to reflect in business. We bake into our estimates (1) stricter estimates for overseas power and non-consumer domestic businesses, and (2) swing in Euro-INR rates. TP revised to `200 from `210.
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
Ordering for MEA and Europe covers up for sharp decline in India; backlog down 15% yoy Overall ordering in 3QFY15 at `24 bn is down 8% yoy. Over 9MFY15, ordering is marginally up by 2.8%, with strong growth in overseas ordering (MEA, Europe) masking the 14% yoy decline in orders from India. This has led to a 15% yoy decline in backlog to `86.6 bn with (1) weak domestic backlog (`35 bn, down 15% yoy, flat qoq) that should improve in the coming quarters, and (2), overseas backlog correcting (`52 bn, down 15% yoy) partly on currency impact (down 9% yoy). Re-work related losses in Hungary may mask improving margin trends for the next few quarters Overseas EBITDA loss of `107 mn includes a loss of `640 mn related to a re-work of a specific large order (€17 mn size). Such losses are related to orders transferred to Hungary from Belgium and will continue for another two quarters. The re-work-related losses are limited to Hungary and will eventually phase out (€70 mn of breakeven business, which the facility used to exceed before the business shifted from Hungary). Apart from €4 mn EBITDA loss from Hungary for 3QFY15, other entities reported a sharp reduction in losses (Canada –1.4 mn dollar loss) or reported positive financials (Belgium, Power systems US). Automation/ systems now at ~40% of overseas backlog; will take time to reflect in business Automation and systems now comprise about 38% of the company’s `52-bn overseas backlog. Both these segments have recorded recent large order wins and a significant contribution from them to revenues might be a little back-ended (possibly from 2HFY16). 3QFY15: Sharp decline in exports, write-down of tax provisions and re-work losses mar results Weakness in consolidated revenues (`33.3 bn, flat yoy, 5% below estimate) was driven by a sharp decline in power exports (halved yoy to `1.3 bn). EBITDA losses overseas led to a 10% yoy decline in EBITDA. Weak other income and write-down on Canadian deferred tax liability led to a small PAT (`52 mn). We revise estimates to `3.9, `7.7 and `11.8 from `5.7 `9.2 and `13.1 for FY2015-17E. We build slow recovery in overseas margin while building modest growth for non-consumer domestic business.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily04022015rq.pdf
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