Buy TIL; target of Rs 680: Sushil Finance

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Buy TIL; target of Rs 680: Sushil Finance

Sushil Finance is bullish on TIL and has recommended buy rating on the stock with a target of Rs 680 in its August 05, 2011 research report.

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Sushil Finance is bullish on TIL and has recommended buy rating on the stock with a target of Rs 680 in its August 05, 2011 research report.

"During Q1FY12, TIL Ltd (TIL) has delivered strong 28.3% YoY growth in its Consolidated Revenues to Rs. 3,524.4 mn, while its EBITDA margins declined by 200 bps YoY to 6.1%. The decline in margins can be attributed to combination of factors such as competitive scenario affecting realization, higher sales contribution from low margin prime products, high interest cost forcing clients to defer orders already placed, and slower order inflows especially from government projects. Due to sharp 165.1% increase in interest cost at Rs. 80.6 mn, its Consolidated APAT declined by 38.9% to Rs 61.3 mn. Going forward, TIL expects FY12 Revenues growth to be around 25%, its margins to be stable sequentially in Q2FY12, but to improve substantially in H2FY12 (as compared to H1FY12), which is usually the period when TIL will execute some of its large orders."

"During Q1FY12, TIL managed to grow Revenues in most of the segments it operates. The Revenues from its material handling segment grew by 28.6% YoY to Rs. 495.3 mn, while Revenues from its power system segment grew by 43.9% YoY to Rs. 856 mn & the Revenues from its construction & mining equipment segment grew by 23% YoY to Rs. 2,173.1 mn. Comparatively, as indicated by the management, Q1 Revenues of 'TIL and its subsidiary TIPL" grew by 9.3% YoY to Rs. 2,580 mn, while the EBITDA grew by 1% YoY to Rs.190 mn. However due to sharp increase in interest cost, its PBT declined by 49.1% to Rs.58 mn."

"The First phase of its expansion of MHE facility, which was scheduled to commence production from July 2011, has started operations in its first unit. However TIL expects the other units to be operational by November 2011. Hence, Revenues contribution from new facility for FY12 is expected to be lower than its earlier estimates of Rs. 2,000 mn. TIL has already invested about Rs. 800 mn and expects to invest another Rs. 900 mn for the 1st phase of its capacity expansion at Kharagpur. The overall capital expenditure for TIL during FY12 is expected to be in range of Rs. 1.6-1.7 bn, and the company is confident of funding its cap-ex requirements through future cash generation, reducing its working capital by liquidating its inventories (which are at elevated levels), and focusing on collection from debtors."

"Despite of a sharp rise in its Revenues during Q1FY12, TIL's margins fell. Due to delays in infra spending by government, TIL was forced to aggressively sell its products in the market place. TIL needs to place purchase orders to Caterpillar, for its sales requirement in India, well in advance. Based on its estimates of the demand expectation for the projects in mining, construction, road & other infrastructure sectors, TIL builds it inventory position. However, due to delay in finalization of some road projects & slower pace of mining activities, the expected demand did not materialize. Since the government spending is yet to pick up, TIL may resort to aggressive sales push in Q2FY12 as well. However, it is taking steps to reduce its working capital and expects demand environment to improve in H2FY12 especially for Road & construction projects. Considering its Q1FY12 performance, we have reduced our FY12E & FY13E estimates. We now expect its consolidated Revenues to grow by 18.4% in FY12E to Rs. 16,341.7 mn & by 16.5% in FY13E to Rs. 19,043.1 mn, while its APAT to decline by 7.9% in FY12E to Rs. 554.2 mn, but to grow by 23.1% to Rs. 681.9 mn in FY13E. At CMP of Rs.411, the stock is trading at an attractive valuation of 7.4x its FY12E EPS of Rs.55.3 and 6.0x its FY13E EPS of Rs.68. We maintain our 'BUY' rating on the stock with reduced target price of Rs 680 (10x FY13E earnings)," says Sushil Finance research report.

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