Accumulate Jyoti Structures: Prabhudas Lilladher

“Jyoti Structures (Jyoti) reported sales growth of 6.5% YoY at Rs5.87bn for Q3FY12, below our expectation of Rs6.61bn. EBITDA margin was down by 120bps YoY to 10.1% (our estimate of 10.8%), mainly on account of 54% YoY increase in erection and subcontracting expenses . Interest cost increased by 64% (due to increased cost of borrowing and higher debt), resulting in PAT de-growth by 44% to Rs138m, lower than our estimate of Rs253m. The weak top-line growth was a result of factors like issue in obtaining Right Of Way (ROW) and forest clearance for few projects leading to delayed timelines. Also, the company went slow on execution of few projects where payment from clients was slow.”

“The current order book stood at Rs43bn, up 2% YoY. The break-up of order book in terms of segment is: 62% Transmission line, 19% Substation and 19% Rural electrification orders. In terms of client, Power Grid contributed 42% of the order book, Maharashtra SEB 19%, MP SEB 9%, private 8% and 22% by other SEBs like Chhattisgarh, UP, DVC, TN, J&K, Assam, etc. The company received fresh orders worth Rs5.12bn in Q3FY12 which is an increase by 22.5% YoY majorly on account of low base effect. All the orders during the quarter were received from Power Grid. It highlighted that the outlook for order continues to be bright, with business worth Rs100bn on the anvil .over the next few months. It highlighted that competition continues to be severe in both, power grid and state orders and in fact the pricing in state orders is lower than power grid orders. It also highlighted that the company will continue its policy of not accepting low margin orders.”

“The stock is currently trading at 4.4x FY12E and 3.8x FY13E. We have downgraded our FY12 and FY13 earnings by 18% and 15%, respectively, to factor in lower-than-expected numbers in the quarter and slower execution and higher interest cost, going forward. We believe that improvement in SEB’s payment cycle, improvement in tendering and effective working capital management will be the key triggers. We maintain ‘Accumulate’ rating on the stock,” says Prabhudas Lilladher research report.

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