Accumulate Gujarat Apollo Industries - Motilal Oswal

Gujarat Apollo Industries Ltd (GAPI.IN; Mkt Cap USD 53m, CMP Rs 145, Accumulate)

Gujarat Apollo's standalone numbers and consolidated numbers were below estimates.

Standalone revenues at Rs. 46 cr (down 24% y/y) were below expectations. This is partly attributable to shift of some products into subsidiaries. Consolidated revenues were flat due to this impact. The expected pickup in sales during the quarter did not materialize as execution of construction projects was impacted by unseasonal rains all over India and cold weather conditions in North India.

Operating margins were impacted by detoriation in mix and inability to pass-on steel price increases to customers. Lower Operating margins have translated into a 44% drop in profits. On a sequential basis, however margins and profits have improved due to seasonal effect.

Consolidated profits were lower by 14% y/y and 16% for the YTD period. This is despite 7% YTD growth in revenues. EO items for the quarter include Rs. 17.1 cr from sale of surplus land. Given the lower sales and earnings for the quarter, we have downgraded our earnings further.

The company has improved customer enquiries since the middle of 3QFY11 and this is likely to translate into better growth in FY12. Given that targets for this 5-year plan will become the focus in the next few quarters and a low base effect, the company is likely to see improved performance in the quarters to come.

Promoters have hiked their stake in the last quarter and that could be a signal to better times ahead. In view of our downgrade in earnings, we are reducing our price target to Rs.225. Accumulate.

Source : Equity Bulls

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