MBL Infrastructures - 3QFY17 Result Update - Performance Back on Track; Concerns still Prevail - Reliance Securities

MBL Infrastructures (MBL) has managed to back on track in 3QFY17 following a worst ever performance in 2QFY17. Despite 18% YoY (+52% QoQ) decline in revenue, its operating profit improved by 8% YoY to Rs708mn mainly owing to 295 bps YoY improvement in operating margin to 12.5%. Notably, interest cost witnessed a sharp up-tick (+77% YoY and +93% QoQ) due to rise in working capital loans for which its net profit contracted by 43% YoY to Rs135mn. We have downwardly revised our earnings estimates by ~16% for FY18E mainly to factor in likely revenue loss due to delay in captive HAM projects and surging finance cost due to higher debts. As we remain concerned on MBL's ability to kick-start already bagged HAM projects in the near-term and meet working capital needs, we do not see any reason for rating upgrade despite attractive valuation. Hence, we reiterate our HOLD recommendation on the stock with a revised SOTP-based Target Price of Rs58.

Performance Improves Sequentially

MBL witnessed a recovery in sequential performance following a disastrous performance in 2QFY17 impacted by termination of two projects. However, YoY earnings performance remains dismal mainly led by: (a) termination and surrendering of three key projects in last four months; (b) delay in meeting FCs for HAM projects in hand; and (c) working capital pressure. Higher working capital requirement led to higher interests cost (+77% YoY), which dragged its net profit by 43% YoY to Rs135mn.

Order Backlog Stands at Rs40.0bn

MBL's current order backlog stands at Rs40.0bn (1.7x TTM revenue), which we do not consider to be impressive. Termination of orders by MPRDC impacted order book. Roads & Highway segment accounts for 86% of its total order book, while 8% and 6% belong to housing and other infra segments, respectively.

Outlook & Valuation

Given the delay in achieving FCs for HAM projects, promoters' inability to release pledged shares (which already led to decline in their holding to 31% from 49% in six months due to invocation) and visible working capital issues, we do not envisage any trigger to re-rate the stock despite a demanding valuation (2.8x FY18E EPS). Any rerating of the stock in future will depend upon possible ease in working capital cycle (as guided by MBL), satisfactory progress in HAM projects and addition of quality orders. We reiterate our HOLD recommendation on the stock with a downwardly revised SOTP-based Target Price of Rs58 (Rs34 from EPC and Rs24 from BOT projects).

Shares of MBL Infrastructures Ltd was last trading in BSE at Rs.54.35 as compared to the previous close of Rs. 49.45. The total number of shares traded during the day was 537731 in over 2048 trades.

The stock hit an intraday high of Rs. 54.35 and intraday low of 52.8. The net turnover during the day was Rs. 29098366.

Source : Equity Bulls

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