Supreme Infrastructure - Management meet reinforces confidence; Buy - Anand Rathi

We recently met the senior management of Supreme Infrastructure to get an insight on latest developments in various business verticals and overall industry scenario. We raise our profit estimates by 6% for FY13 & FY14 and target price by 5% to Rs.350 and maintain a Buy.

- Order book on the rise. Supreme's order book has grown 25% yoy to Rs.39bn (incl. L1 projects of Rs.6bn), scheduled for completion in the next 24-30 months. This provides good revenue visibility over FY13-14 (2.6x TTM revenues). The company bagged orders of Rs.23bn during FY12 and aims at orders of Rs.25bn during FY13. It also plans to diversify by expanding to the Water and Power segment.

- Robust outlook. Management has guided to 30% revenue growth in FY13 and aims to maintain the EBITDA margin. However, the NPM may come under pressure due to the mounting debt. It expects good traction on execution of its road projects to help revenue growth.

- BOT projects funding in place. During 4QFY12, Supreme completed financial closure of three remaining road BOT projects (Sangli-Shiroli, the Haji Malang Ropeway and Ahmednagar-Karnala-Tembhurni). For ten road projects, it has an equity commitment of ~Rs.7.65bn over FY12-15. Of this, Rs.3.8bn has been infused by Supreme through investment, advances and debt at the hold-co level, Rs.3.1bn is to be infused by 3i India Infra Fund, and the balance will be invested by Supreme over FY12-15.

- Raise estimates. We have raised our revenue estimates for FY13 and FY14 by 8% each and PAT estimates by 6% each.

- Valuation. Our sum-of-parts-based price target of Rs.350 (earlier Rs.333) is based on 5x the FY13e PE construction business (Rs.313, a 45% discount to midcap target multiples) and 1x P/BV Sep'11 (Rs.44). Risk: rise in interest rates, drop in operating margins.

Source : Equity Bulls

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