Jyoti Structures - Interest cost continues to drag earnings - Prabhudas Lilladher

Results better than expectation: Jyoti Structures (Jyoti) reported sales growth of 2% YoY at Rs7.35bn for Q4FY12, marginally above our expectation of Rs6.8bn. However, execution narrowed on account of Right of Way (ROW) issues and delay in delivery to customers like TNEB and DVC due to payment concerns. EBITDA margin was down by 40bps YoY at 11.2%. However, sequentially it has improved by 110bps QoQ. Also, it is above our expectation of 10.2% majorly on account of reduced raw material cost as % of sales by 400bps YoY at 50.3%. Interest cost increased by 22% YoY at Rs405m (due to increase in debt). Decrease in tax rate by 750bps YoY helped report PAT of Rs315m (just down by 10% YoY), better than our expectation of Rs 211m.

Focus on Power Grid orders: The current order book stood at Rs43.3bn, down by 4.5% YoY. The break-up of order book in terms of segment is: 60% Transmission line (~Rs25.98bn), 20% Substation (~Rs8.66bn) and 20% Rural electrification (~Rs8.66bn) orders. In terms of client, Power Grid contributed 40% (~Rs17.32bn) of the order book, Madhya Pradesh Rural Electrification projects 7% (~Rs3.03bn), Private 6% (Rs2.59bn) and rest 31% (~Rs13.4bn) from other SEBs like Chhattisgarh, DVC, West Bengal, Rajasthan, Assam and Punjab. The company received fresh orders worth Rs7.7bn in Q4FY12, a decrease by 30% YoY. The pipeline of tenders to be opened over the next 2-3 months was ~Rs65bn (PGCIL ~Rs45bn, other domestic orders ~Rs15bn and international markets ~Rs5bn). Pipeline of new tenders coming up for bidding was ~Rs46bn (Power Grid Rs39bn and others worth Rs7bn). The company highlighted that though the bid of some of the marginal players are not being opened, the pricing levels have still not improved in the domestic markets.

Update on subsidiaries: Gulf Jyoti has reported sales of 208m Dirhams, PAT at 12m Dirhams and its order book stood at 500m Dirham's as on CY12. Jyoti Structures Africa has achieved a breakeven a year before its guidance, with sales at 180m ZAR, PAT at 31m ZAR, with an order book of 150m ZAR.

Balance sheet under clear stress: Debtors increased from 190 days to 200 days QoQ. Delayed payment by SEBs like TNEB and DVC is leading to increase in the working capital cycle for the company and leading to a pile up of debt. Working capital % sales increased to 41% up 600bps YoY. The debt has increased by Rs2.4bn YoY to Rs7.2bn in FY12 and outstanding LC has increased to Rs6bn in FY12 from 4.5bn in FY11. Average cost of borrowing remained at 12.5% and LCDs at 10.75%. Company has redeemed 7% NCDs worth Rs1.2bn in Q1FY13 and have replaced this by taking further domestic debt.

Guidance and other highlights: Jyoti is targeting revenue growth of Rs30bn in FY13, with EBITDA margins in the range of 10.5-11%. The company expects to incur the capex of Rs2.5bn-3bn in FY13.

Outlook and Valuation: The stock is currently trading at 4.3x FY13E. We believe that the stock will be under pressure, given slower execution, higher interest cost, over dependence on Power Grid's orders stressed out balance sheet and increasing competition. Effective working capital management will be the key trigger. We maintain 'Accumulate' rating on the stock.

Source : Equity Bulls

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