Era Infra Engineering - Good results, order book stagnant; Hold - Anand Rathi

Muted revenue, margin better. Era Infra Engineering's (Era) revenue came in line with our estimate, up 10.7% yoy (down 26% qoq), following a 7% rise in its contracts division. The trading division grew 27% yoy and equipment hiring slipped 3% yoy. EBITDA margin, at 19.6% (up 60bps yoy and 270bps qoq), was higher than expected due to better margins in the contract division (EBIT margin up 150bps yoy, to 16.5%). The equipment-hiring division clocked EBIT margin of 61.5% (versus 59.2% yoy, 60.2% qoq) due to better utilization of equipment. Backed by strong revenue growth and higher other income, PAT (adjusted for forex fluctuation) at Rs. 402m dipped 5.8% yoy, but exceeded our estimates.

Stagnant order book worrisome. The order book is estimated at over Rs. 100bn (2.6x TTM contracts division revenue). During 1QFY14, the company secured orders of Rs. 7.4bn. The order book is fairly spread across infrastructure (50%), social infra (29%), power (19%) and industrials (2%).

BOT assets capital intensive. A 100% subsidiary, Era Infra (India), has seven BOT projects, of which, only one is operational. Era has infused over Rs. 10.2bn in equity and requires another Rs. 4.3bn over the next three years. Loans from the parent company's balance sheet would keep gearing at ~2x. Fund raising, via equity dilution at the infra-subsidiary level at attractive valuations could, however, be a stock-price trigger.

Our take. Era's revenue, EBITDA and PAT were higher than our estimates on the back of strong EBITDA margins. A static order book (~Rs. 95-110bn) and lower-than-expected order inflows are key concerns. However, the strong 19.6% OPM during 1QFY14 versus 19.1% a year ago is a key positive. We retain Hold, with a sum-of-parts-based target of Rs. 150. This comprises construction at Rs. 100 (at 8x FY14e PE) and BOT at Rs. 50 (at 1x Jun'12 BV). Risks. Increase/decrease in OPM, execution slippages/ramp up.

Source : Equity Bulls

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