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Research
Maintain Buy on McNally Bharat Engineering - PINC Result Review
Posted On : 2010-11-18 11:09:52( TIMEZONE : IST )
McNally Bharat Engineering Co. Ltd (MBEL) reported Q2FY11 standalone YoY revenue growth of 30.5% to Rs4bn driven by increased order execution in the projects segment. OPM was flat at 5.4%. Lower interest cost and higher other income resulted in PAT growth of 128% to Rs96.6mn. The H1FY11 performance of McNally Sayaji was subdued as sales grew by mere 1% and PAT de-grew by 40%. Given the healthy order backlog and positive economic prospects, we remain positive on the long term prospects of the company and maintain our BUY recommendation with a revised target price of Rs340 (12x FY12E)
Higher execution drives revenues
MBEL reported healthy revenue growth of 30.5% to Rs4bn driven by higher execution in the project segment. Booking from the BoP orders also started in the H1FY11. With huge order backlog (2.2xFY10 revenue) and expectation of healthy order inflows, we believe the company will continue to witness strong revenue growth going forward.
Order backlog and inflows
As on date, MBEL has an order backlog of ~Rs40bn vs Rs29.2bn at the end of Q2FY10. Further the company has bidded for projects worth Rs90bn and is L1 in projects worth Rs5bn. The order inflow in the H1FY11 stood at Rs22bn and it expects order inflows worth Rs15-20bn in the H2FY11.
Subsidiary Performance
McNally Sayaji witnessed subdued performance. For the H1FY11, sales grew by mere 1% to Rs1.14bn. OPM contracted by 480bps and resultantly PAT was down by 40% to Rs.66.2mn. CMT reported a sales of Rs1.87bn and OPM of 9.72% for H1FY11.
VALUATIONS AND RECOMMENDATION
We expect revenue to witness a CAGR of 25% (FY10-12E). Though management has given an optimistic guidance of double digit operating margins, we remain skeptical about margin improvement going forward given the fact that company is aiming for high growth by entering into newer segments (BoP, Cement, Oil & Gas etc) wherein it might have to compromise on the margins to bag its maiden order. At the CMP of Rs239 the stock is attractively valued at 9.3x and 8.4x FY11E and FY12E EPS respectively. We remain positive on long term prospects of the company and maintain our 'BUY' recommendation on the stock with a revised target price of Rs340 (12x FY12E).