Premier Ltd - Q4FY12 Result Update - PRIME BROKING

FY12 PERFORMANCE

Premier's FY12 performance was in line with our estimate at the topline/operating profit level and ahead of our estimate at the net profit level primarily on account of the deferred tax asset of Rs. 116 mn due to assessed long-term capital losses and unabsorbed depreciation.

-Revenues grew by 16.0% YoY to Rs. 2,703 mn.
- EBITDA at Rs. 689 mn was up by 7.7% YoY whereas EBITDA margin declined from 27.5% in FY11 to 25.5% in FY12 because of higher contribution from the lower margin automotive segment as well as increase in employee costs.

- Interest cost were up significantly by 42.2% YoY due to increased borrowings for expansion & modernization of the company's manufacturing facilities and working capital needs; depreciation was up by 9.8% YoY.

- Profit before tax at Rs. 142 mn was down by 38.5% YoY, however, net profit at Rs. 228 mn was up by 23.8% YoY primarily on account of the deferred tax asset of Rs. 116 mn due to assessed long-term capital losses and unabsorbed depreciation

Q4FY12 PERFORMANCE

Quarter Highlights

- Revenues were up by 14.7% YoY to Rs. 795 mn.
- EBITDA at Rs. 166 mn was down by 6.6% YoY because of lower EBITDA margin of 20.9% compared to 25.6% during Q4FY11.
- Interest costs were up significantly by 38.7% YoY and depreciation was up by 7.1% YoY.
- Profit at PBT level stood at Rs. 10 mn, down by 82.4% YoY, however, net profit at Rs. 125 mn was up by 175.0% YoY primarily because of the deferred tax asset of Rs. 116 mn

OUTLOOK

Premier's Machine Tools business continues to remain subdued as the high interest rate environment in India has adversely affected the capital goods sector. Over the next three years, the company plans to aggressively expand its gear cutting machine presence in BRIC geographies such as Brazil, Russia as well as Indonesia and Turkey.

Its Engineering business continues to register steady growth as new lines are expected to be commissioned during FY13. The Engineering division has over Rs. 3.0 bn worth of orders, which are executable over the next 18-24 months.

By June 2012, its Automotive division is expected to add 30 dealers to its existing network of 50 dealers for its compact SUV, RiO. The company is targeting 100 dealerships and 300 service stations by December 2012. The management expects launch of its Euro-IV compliant diesel version of RiO during the current financial year to help it ramp up sales going forward.

The company is expected to actively pursue the monetization plans for its 216 acres of industrial land in Dombivli, Kalyan.

VALUATION

We estimate a 43.4% and 21.6% revenue growth in FY13E and FY14E because of the expected steady growth in the company's Machine Tools & Engineering divisions and expected ramp up in sales in the automotive division post launch of its Euro-IV compliant diesel version of RiO and larger dealership network.

We expect lower EBITDA margin for FY13E and FY14E because of the expected higher contribution to revenues from the lower margin automotive division. Our FY13E and FY14E EPS estimates are Rs. 4.1 and Rs. 6.8 respectively. The company is currently trading at P/E multiple of 16.7x and 10.0x and EV/EBITDA multiple of 6.4x and 5.2x times FY13E and FY14E numbers respectively.

Further, unlocking of value from sale of its land that is conservatively valued between Rs. 4.5 - 5.5 bn would translate to present value of Rs. 115 per share assuming a 30% discount at the average of the valuation range. Our sum-of-the-parts target price on the stock is Rs. 176.

KEY RISKS

There are the following three key downside risks:

- Sluggish demand in the auto sector and economic slow down would have negative impact on all the three industries - machine tool, engineering and light vehicles.

- Low liquidity in the system or hindrances in making retail finance available to its light vehicles customers.

- Risk of asset obsolescence on account of loss of particular accounts in the Engineering division.

Source : Equity Bulls

Keywords