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Recovery expectations get deferred. The pace of recovery in business would be restricted by (1) weak backlog (down 15% yoy), (2) slow pace of closure of legacy jobs (would extend into FY2016) and (3) potentially slow pace of recovery in SAE Towers (as it comes out of losses). Strong `40 bn L1 pipeline proceeds for Thane land sales and modest decline in debtors enthuse us. We build in sharp miss in 3Q results and potential benefit of interest rate cuts. On our revised estimates, we cut our TP to `100 (from `115).
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
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Results – EBITDA losses at SAE Towers, closure of non-T&D jobs mars results 3QFY15 revenues (down 7% yoy) were impacted by (1) weakness in SAE Towers (currency) and (2) slow execution of specific overseas orders (now closed). While core T&D margin was steady at 8%, overall 5.1% margin was impacted by (1) losses in SAE Towers on underutilization (~100 bps impact) and (2) closure of legacy non-T&D jobs. Interest cost has remained high (qoq reduction on account of one-offs in the prior quarter). This would lead to a small PAT; actual PAT was higher at `664 mn, boosted by `1.3 bn of profit on sale of the Thane land parcel. Unchanged business guidance hinges on conversion of L1 orders, timely closure of legacy jobs KEC noted strong `40 bn pipeline of orders, where it is L1. It expects about `30 bn of these to get finalized over the next two months, helping yield a flat yoy backlog (was down 15% yoy as of end-December 2014). This coupled with improvement in the pace of execution is built into its 10% revenue growth guidance for FY2016E. While we are positive about the pace of execution, we build in lower `20 bn of L1 orders getting booked in FY2015 (based on similar levels of L1 orders booked over the past three months). As against KEC’s unchanged 8% margin guidance for FY2016E (versus 5.5% in 9MFY15), we build in a lower 7.3% margin. We are cautious on (1) the pace of recovery in margin in SAE Towers (reported losses in 3QFY15) and (2) timely closure of legacy orders (based on slow progress on the same in the past few quarters). Debt levels reduce on proceeds of Thane land sale and reduction in debtors Net debt for KEC has reduced to `23.5 bn from `26 bn qoq. This `2.5 bn reduction was realized from (1) `1.5 bn of post-tax proceeds from Thane land sale and (2) reduction in debtors by eight days of sales of `0.8 bn. While interest cost remains high (3.9% of sales), KEC aims to bring it down by replacing debt with commercial papers and FCCBs. We build in a `5 bn reduction in debt and about 200 bps lower interest rate leading to sub-3% of sales in FY2017E. Reduce business estimate and build in benefit of interest rate cuts We revise estimates to `5.7, `5.9 and `10.4 from `4.5, `8.5 and `12.1 for FY2015-17E , incorporating (1) the impact of sharp decline in 9MFY15 order inflows/backlog (down 15-20% yoy), (2) moderation in margin recovery and (3) 100 bps additional cut in interest cost in FY2017E.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily06022015mh.pdf
Recovery expectations get deferred. The pace of recovery in business would be restricted by (1) weak backlog (down 15% yoy), (2) slow pace of closure of legacy jobs (would extend into FY2016) and (3) potentially slow pace of recovery in SAE Towers (as it comes out of losses). Strong `40 bn L1 pipeline proceeds for Thane land sales and modest decline in debtors enthuse us. We build in sharp miss in 3Q results and potential benefit of interest rate cuts. On our revised estimates, we cut our TP to `100 (from `115).
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
Results – EBITDA losses at SAE Towers, closure of non-T&D jobs mars results 3QFY15 revenues (down 7% yoy) were impacted by (1) weakness in SAE Towers (currency) and (2) slow execution of specific overseas orders (now closed). While core T&D margin was steady at 8%, overall 5.1% margin was impacted by (1) losses in SAE Towers on underutilization (~100 bps impact) and (2) closure of legacy non-T&D jobs. Interest cost has remained high (qoq reduction on account of one-offs in the prior quarter). This would lead to a small PAT; actual PAT was higher at `664 mn, boosted by `1.3 bn of profit on sale of the Thane land parcel. Unchanged business guidance hinges on conversion of L1 orders, timely closure of legacy jobs KEC noted strong `40 bn pipeline of orders, where it is L1. It expects about `30 bn of these to get finalized over the next two months, helping yield a flat yoy backlog (was down 15% yoy as of end-December 2014). This coupled with improvement in the pace of execution is built into its 10% revenue growth guidance for FY2016E. While we are positive about the pace of execution, we build in lower `20 bn of L1 orders getting booked in FY2015 (based on similar levels of L1 orders booked over the past three months). As against KEC’s unchanged 8% margin guidance for FY2016E (versus 5.5% in 9MFY15), we build in a lower 7.3% margin. We are cautious on (1) the pace of recovery in margin in SAE Towers (reported losses in 3QFY15) and (2) timely closure of legacy orders (based on slow progress on the same in the past few quarters). Debt levels reduce on proceeds of Thane land sale and reduction in debtors Net debt for KEC has reduced to `23.5 bn from `26 bn qoq. This `2.5 bn reduction was realized from (1) `1.5 bn of post-tax proceeds from Thane land sale and (2) reduction in debtors by eight days of sales of `0.8 bn. While interest cost remains high (3.9% of sales), KEC aims to bring it down by replacing debt with commercial papers and FCCBs. We build in a `5 bn reduction in debt and about 200 bps lower interest rate leading to sub-3% of sales in FY2017E. Reduce business estimate and build in benefit of interest rate cuts We revise estimates to `5.7, `5.9 and `10.4 from `4.5, `8.5 and `12.1 for FY2015-17E , incorporating (1) the impact of sharp decline in 9MFY15 order inflows/backlog (down 15-20% yoy), (2) moderation in margin recovery and (3) 100 bps additional cut in interest cost in FY2017E.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily06022015mh.pdf
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