>Kalindee Rail Nirman Ltd (DOLAT CAPITAL)

Kalindee Rail reported 4QFY09 results below our expectations with 25.8% increase in sales to Rs613.8mn and 40% de-growth in PAT to Rs12.8mn. The margins for the quarter declined by 90bps on account of substantial increase in employees cost and other expenses. With the new government in making, we expect significant delays in Dedicated Freight Corridor (DFC) and other orders flows from railways. Also, delay in execution caused by other sub-contractors has further pushed Kalindee’s revenue booking which has reflected in the numbers and should impact the earnings going forward. As the scenario remains bleak for order inflows for at least the next two quarters, we recommend a Sell on the company with a target price of Rs93 at which it would be trading at a PER of 5xFY10E earnings. Our target price of Rs125 has been achieved and we downgrade the price by another 25.6%.

Result Highlights

■ Sales for 4QFY09 increased by 25.8% to Rs613.8mn. The operating margin declined by 90 bps yoy to 6.8%. This was mainly on account of 145% increase in staff cost and 125% increase in other expenses (which includes work costs). However, the raw material costs have declined by 20% signifying a positive impact from falling commodity prices.

■ PAT de-grew by 40% to Rs.12.8mn with a decline in net margins by 230bps to 2.1% despite other income of Rs.2.7mn (nil last quarter). The margins were impacted adversely due to increase in depreciation and interest cost by 33.3% & 195% respectively.

■ For FY09, the Sales grew by 14.3% to Rs.2812.2mn and PAT de-grew by 19% to Rs.115.3mn. The operating margins remained stable at 9.5%. However, PAT margins declined substantially by 170 bps mainly on account of 173% increase in interest cost.

Key Developments
■ The company has reported below expectation numbers on topline due to delay by a mid-tier construction company based in north for two orders of Rs1000mn and Rs800mn.

■ The delay in execution caused by other sub-contractors has further pushed Kalindee’s revenue booking. This has also impacted the earnings negatively as the company has already hired the requisite equipments and machinery for the project but is unable to execute due to delay by links in the value chain. The interest cost and depreciation for such equipments is adding up to a significant amount hitting the margins negatively.

■ The Company’s current order book stands at Rs.4000mn (1.4x FY09 Sales). We feel that there should be a slowdown in order inflows for at least the next two quarters until a stable government is formed. This would further delay the DFC and RVNL projects.

Valuation
Though Kalindee is well placed to tap the opportunities in Railways due to its technical expertise, we feel that delay in crucial projects would postpone the revenue booking. Also, a bleak scenario for order book build-up does not augur well for the company. As the scenario remains bleak for order inflows for at least the next two quarters, we recommend a Sell on the company with a target price of Rs93 at which it would be trading at a PER of 5xFY10E earnings. Our target price of Rs125 has been achieved and we downgrade the price by another 25.6%.

To see full report: KALINDEE RAIL NIRMAN