Pennar Industries Ltd. - Nirmal Bang

Quarterly Analysis

Pennar Industries has reported a dismal consolidated quarter due to heavy engineering division witnessing a slow order inflow for the second straight quarter due to the slower off-take from the railway segment. According to the management, the scenario is expected to be favorable in FY13E. The Consolidated EBITDA fell by 18.4% YoY to Rs. 31.1 crores and by 16.2% on QoQ basis. The EBIDTA margin fell by 110bps to 11.1% in Q3FY12 as against 12.2% in Q3FY11 and 12.6% in Q2FY12. The heavy engineering division reported a dip in EBITDA margin by 210bps to 18.8% was the main reason for the decline in overall margins for the company. The decline in margins was also supported by the jump in employee expenses. The PAT declined by 29.2% YoY to Rs. 14.3 crores and by 21.9% QoQ. The fall in PAT was attributed by the significant jump in depreciation and interest cost.

PEBS, a subsidiary of Pennar Industries has posted a remarkable performance restricting a huge dip in the consolidated sales. Sales increased by 75.8% YoY to Rs. 61.1 crores in Q3FY12 and by 7.5% QoQ on the account of robust volume growth and higher price realization. We are of the view that this segment will outperform other segments though margins will remain under pressure due to the increase in competition from its peers.

Key Highlights:

- Consolidated Net Sales for Q3FY12 decreased by 10.8% YoY to Rs. 278.7 crs and by 5.5% on QoQ.

- The order book at PEBS currently stands at Rs. 218 crores and the managements expect to report Rs. 265 crores from this segment in FY12E.

- The capacity in PEBS currently stood at 60000 tpa after capacity expansion of 30000 tpa in Q3FY12.

- The company has ventured in solar fabrication and structural designing for solar panels. According to the management the segment will report 15-16% operating margin. The segment has reported a turnover of Rs. 39 crores in Q3FY12. According to the management, the solar business will report a turnover of Rs. 100 crores by the end of FY12E.

Valuation & Recommendation

At CMP of Rs. 33, Pennar is trading at a P/E of 6.4x FY12E & 5.1x FY13E and EV/EBITDA of 4x FY12E and 3.4x FY13E. We have reduced our earnings estimate owing to the dismal performance and pressure on margins for the second straight quarter. We have reduced EBIDTA by 11% for FY12E and by 5.4% in FY13E. We have revised our target price of Rs. 42 per share (Rs. 46 per share), valued on (EV/EBIDTA of 4x on FY13E).

Source : Equity Bulls

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