CRISIL maintains valuation grade of 5/5 to Spanco

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CRISIL maintains valuation grade of 5/5 to Spanco

CRISIL Research has come out with its report on Spanco. The research firm has maintained the fundamental grade of 3/5 to the company in its November 21, 2011 report.

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CRISIL Research has come out with its report on Spanco . The research firm has maintained the fundamental grade of 3/5 to the company in its November 21, 2011 report.

Spanco's September 2011 standalone numbers were in line with CRISIL Research's expectations. Q-o-q revenue growth was driven by the first full quarter of power distribution operations in Nagpur. As expected, EBITDA and PAT margins declined due to the higher start-up costs during the stabilisation phase in Nagpur. The MP border check post project is running as per schedule and land acquisition for 18 of the 24 sites has been completed. We maintain our earnings estimates and the fundamental grade of 3/5.

September 2011 standalone result analysis
• Spanco's standalone revenues increased by 15.1% q-o-q (up 44% y-o-y) to Rs 5,022 mn. The first full quarter of revenue collection from power distribution in Nagpur, which commenced in May 2011, led growth. Spanco booked revenues of Rs 1,350 mn from the Nagpur power distribution franchise (DF) in the first full quarter of operations.

• The telecom segment's revenues continued to decline as Spanco focuses on government and power verticals.

• EBITDA margin declined by 72 bps q-o-q to 11.5% (down 383 bps y-o-y) due to higher initial costs in Nagpur as the project is in the stabilization phase.

• PAT margin declined by 42 bps q-o-q (down 150 bps y-o-y) to 3.4%. EPS for September 2011 was Rs 5.5 compared to Rs 5.3 in June 2011.

• Although Spanco does not report consolidated numbers, as per the management, BPO revenues declined by 6.3% q-o-q to Rs 750 mn due to loss of business for 13 days in Nigeria on account of labour issues. However, all the labour problems have been resolved and we expect BPO growth to be back on track from the next quarter. EBITDA margin improved to 16% compared to 13% in the previous quarter where the company incurred higher costs for the commencement of Bharti's operations in Africa.

Valuations: Current market price has strong upside
We continue to use the sum-of-the-parts method to value Spanco. We have used the price multiple method to value Spanco except the Nagpur DF and MP border projects, which have been valued by the discounted cash flow method. We maintain our fair value of Rs 289 per share and valuation grade of 5/5.

To read the full report click on the attachment

Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report.  The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.

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