Gammon India - Not Rated - Motilal Oswal

GAMMON INDIA: Management meet update; Legacy orders impacting profitability; Not Rated

- Order intake is likely to be muted in FY11. Order book at FY11-end is expected to remain flat YoY at around Rs150b.

- The current order book stands at Rs150b, including T&D segment. Gammon expects the year end order book at Rs150b, with BTB at 2.5x FY11 revenues.

- Low margin legacy orders have impacted profitability in FY10 and 1HFY11. Such orders, at around 10% of the order-book, will keep margins under pressure.

- Debt has alarmingly risen in past six months to Rs25b from Rs13b at the end of FY10. With deteriorating working capital, debt is unlikely to ease in FY11-12.

- Reported a PAT of Rs1.25b in FY10 as PAT margin declined by 105bp to 2.8%. In 1HFY11, PAT was Rs542m, v/s Rs692m in 1HFY10 (YoY decline of 21%).

Gammon India is facing multiple headwinds. To grow, the company will have to sharply improve order intake in FY12. Old orders and high cost borrowings will keep earnings under pressure in FY12. Adjusting for its 75% stake in Gammon Infrastructure, Gammon India is trading at 16.4x FY10 EPS of Rs9.8. Not Rated.

Source : Equity Bulls

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