Buy Madhucon Projects - PINC Result Review

Lead by Road & Power Execution

Madhucon Projects reported 43% YoY growth in topline at Rs4.1bn, which is ~8% above our estimates. Operating margins were down by ~180bps YoY to 10.7% lead by higher power segment mix, inline with our estimate of 11%. Higher interest cost and tax rate has lead mere growth of PAT by 2.8% at Rs135mn vs our estimate of Rs153mn.

Power EPC drags margin

Sales mix of Power EPC segment has increased to 42.6% vs 22%in FY10, whereas road segment constituted 47.1% vs 54% in FY10, which we have already factored in our margins for FY11E at 10.1%.

Order book increases 25% QoQ; lead by internal orders

EPC work of Bihar BOT, worth Rs6.2bn and phase II of power project worth Rs12bn included in order book of Rs49.3bn vs Rs39.5bn at end of FY10 a increase of 25% QoQ. Power EPC segment dominates the order book position with 34.5% followed by Roads at 24.4%, Irrigation 22.3%, Buildings 15.9% and Mining at 2.8%. Book to bill ratio is at 3.3x our FY11E revenue.

Operational BOT projects clocked Rs130mn revenue

The toll collection from two operational BOT projects touched Rs130mn for the quarter, Agra-Jaipur Expressway has collected Rs69.6mn whereas Dindigul-Karur has collected Rs59.7mn.Madurai-Tuticorin is awaiting final notification for its commencement and is likely to start tolling from end of August, and Trichy-Thanjavur is likely to commence operation from September.

High Interest cost

Interest cost for the quarter was higher at Rs103mn vs Rs80mn expected due to higher WC loans at Rs2bn & long-term loans of Rs1.2bn.

VALUATIONS AND RECOMMENDATION

We reiterate our 'BUY' recommendation on stock with a SOTP based price target of Rs183. We have valued the core construction business at Rs79.3, 11x FYE earnings, Road BOT on DCF basis at Rs54.8, Phase I of power project at Rs39.6, and value the Hotel and Mining business on book value at Rs3.9 and Rs5.3 resp.

Source : Equity Bulls

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