Wednesday, February 1, 2012

>JYOTI STRUCTURES LIMITED: Revenue growth guidance would depend upon the clearances and payments made by the clients.

Jyoti Structures Ltd (JSL) Q3FY12 results were below our expectation on execution getting impacted due to delay in clearances and payments by clients. During the quarter, the company reported 6.5% yoy growth in net revenue at Rs 6 bn and PAT declined by 44% yoy to Rs 138 mn. The decline in PAT was on account of 127 bps decline in EBITDA margins and 63.7% yoy rise in interest expenses. The company added Rs 5.1 bn of new orders resulting in an order backlog of Rs 42.9 bn at the end of the quarter. The achievement of 20% revenue growth guidance would depend upon the clearances and payments made by the clients.

Key Highlights
Q3FY12 revenue grew in single digit at 6.5% yoy: The net revenue of JSL witnessed single digit growth of 6.5% on yoy in Q3FY12 and was below our expectations. The delay in clearances from various government departments and payment related issues from certain clients resulted into slower execution of orders. Currently 15-20% of the projects are slow moving and these are from state utilities from UP, Tamil Nadu, DVC, etc. The achievement of the guidance of 20% revenue growth would depend upon the clearances and payments made by the clients.

 PAT declined on lower margin and higher interest expenses: In the quarter, the EBITDA margin declined by 127 bps yoy to 10.1% on higher erection & subcontracting expenses and other expenses which included MTM forex losses. The EBITDA for the quarter declined by 5.3% yoy to Rs 595.5 mn. The interest cost grew by 63.7% yoy to Rs 310 mn on account of increase in working capital loan. The delay in payment from some of the SEBs resulted into this. In addition the average cost of debt also remained high at 12-12.5%. As a result, the PAT for the quarter declined by 44.2% yoy to Rs 138 mn.

Rs 5.1 bn of order added in Q3FY12: During the quarter, JSL added Rs 5.1 bn of new orders. The current order backlog stands at Rs 42.9 bn. 62% of orders are from transmission line, 19% from rural electrification and rest 19% are from substation. The current order book comprises 42% of PGCIL orders, 8% of private sector orders and 19% from Maharashtra T&D companies, 9% from MP and balance from other state SEBs like Chattisgarh, Tamil Nadu, UP, West Bengal, J&K, Assam, etc.

 Over Rs 100-110 bn of opportunity in the next few months: The management expects over Rs 11 bn of new opportunity in T&D EPC from various states utilities of MP & Rajasthan. It expects Rs 40 bn of new opportunity from PGCIL which includes Rs 36 bn of bid yet to open and Rs 4 bn of new tenders. Besides this, JSL expects Rs 60 bn of EPC opportunity from BOOT projects from states such as UP, Rajasthan, etc and private players. Besides this, it is looking at Rs 6 bn opportunity from Maharashtra and Bangladesh.

 Outlook & Valuation
We have downgraded our revenue estimates for FY12E & FY13E with the assumption of delay in execution of 15-20% of its orders and have also reduced our margin estimates. We have downgraded our EPS estimates for FY12E and FY13E by over 20% to Rs 9.7 and Rs 10 respectively. Currently, the stock trades at FY12E & FY13E P/E of 4.7x and 4.6x respectively. We maintain BUY on the stock with the revised target price of Rs 60. At our target price the stock trades at FY12E and FY13E P/E of 6.2x and 6 x respectively.