Buy TIL; target of Rs 800: Sushil Finance

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Buy TIL; target of Rs 800: Sushil Finance

Sushil Finance is bullish on TIL and has recommended buy rating on the stock with a target of Rs 800 in its June 6, 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 800 in its June 6, 2011 research report.

"TIL Ltd (TIL) has delivered 6.1% YoY growth in its Consolidated Revenues during Q4FY11, which was below our expectations. During Q4, its Consolidated Revenues, EBITDA and APAT stood at Rs.3,550 mn, Rs.450 mn and Rs.203.5 mn respectively. Its Consolidated EBITDA margins grew by 485 bps QoQ and stood at 12.7%. The sharp QoQ improvement in margin was mainly due to higher Revenue contribution from Material handling Solutions segment, where the EBITDA margins are usually high as compare to Construction & Mining and Power System solutions segments. Going forward, the company expects strong Revenues growth in all the three segments."

"During the quarter, Revenues from its material handling segment grew by 17% QoQ & 16% YoY to Rs.625.4 mn, and Revenues from its power system segment grew by 71% QoQ to Rs.1,058.9 mn, while the Revenues from its construction & mining equipment segment declined by 33.6% QoQ to Rs. 1,865.7 mn. The YoY growth of construction & mining business and power system segment is not comparable as they also include TIL's subsidiaries Revenues. Comparatively, as indicated by the management, Q4 Revenues of 'TIL and its subsidiary TIPL" grew by 22% YoY to Rs.3,388 mn, while the PBT declined by 29.3% YoY to Rs.323 mn, mainly due to higher sales of prime products (where margins are very low) in construction & mining and power system segments."

"During FY11, TIL's consolidated Revenues grew by strong 29.8% to Rs.13,805.9 mn. Its EBITDA grew by 2.9% to Rs.1,275.7 mn, while its EBITDA margins stood at 9.2%, as against 11.7% during FY10. The drop in margin was mainly due to higher Revenue contribution from the prime products sales, where the EBITDA margins are usually low. We expect its margins to improve going forward as the contribution from its support services & spare sales is expected to improve along with increased Revenues from its prime products. The consolidated APAT during FY11 grew by 1.1% to Rs.602 mn. The First phase of its expansion of MHE facility in on track and expected to commence production from July 2011 onwards. TIL is investing about Rs.1,750 mn for setting up of a new manufacturing facility at Kharagpur, which will focus on construction & port equipments. The Company now expects to generate Revenues to the tune of Rs.2,000 mn from the new plant during FY12."

"During FY11, although TIL delivered a decent growth in its Revenues, its Gross & Net margins slipped due to higher prime products sales and higher investments in new projects leading to high staff costs, high Interest & Depreciation costs. However, with strong Revenue growth outlook and higher contribution from MHE segment (additional revenues to come from its new MHE facility), we expect its margins to improve in FY12. The government has also increased its focus on investments in sectors such as Road, construction, mining, power, port, etc. Hence, the demand for the material handling, construction & mining equipment is expected to remain strong in the ensuing period. TIL, with its best in class products & services and vast experience in material handling & mining space, is expected to benefit from these opportunities. Considering its FY11 performance, we have increased our FY12E Revenues estimates but reduced the FY12E APAT estimates, and also introduce FY13E estimates. We now expect its consolidated Revenues to grow by 21.5% in FY12E to Rs.16,775.4 mn & by 16.4% in FY13E to Rs.19,532.2 mn, and its APAT to grow by 15.8% & 15.1% in FY12E & FY13E respectively. At CMP of Rs.437, the stock is trading at an attractive valuation of 6.3x its FY12E EPS of Rs.69.5 and 5.5x its FY13E EPS of Rs.80. We maintain our 'BUY' rating on the stock with target price of Rs.800," says Sushil Finance research report.

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