Hold McNally Bharat Engineering; target Rs 135: Emkay

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Hold McNally Bharat Engineering; target Rs 135: Emkay

Emkay Global Financial Services has recommended hold rating on McNally Bharat Engineering with a target of Rs 135, in its February 13, 2012 research report.

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Emkay Global Financial Services has recommended hold rating on McNally Bharat Engineering with a target of Rs 135, in its February 13, 2012 research report.

"McNally Bharat Engineering, standalone revenues up 30% yoy to Rs4.9 bn. EBITDA margins stable at 6.5%. Net profit growth at Rs10% yoy to Rs125 mn - ahead estimates. MSE disappoints with revenue decline of 28% yoy, EBITDA loss of Rs29 mn and net loss of Rs98 mn. CMT business net profit ahead estimates at Rs32 mn. Order inflows dismal at Rs1.4 bn. Order book down 8% qoq to Rs36 bn. But L1 in orders worth Rs8.6 bn. Debt continues to rise - up 46% over Mar'11 to Rs4.2 bn. Cut earning estimates by 20% for FY12E and 8% for FY13E. Foresee no re-rating catalysts in near term."

"MBL's standalone debt has increased sharply by 46% from Rs2.9 bn in Mar'11 to Rs4.23 bn in Dec'11. This has largely been due to deterioration in working capital cycle. Consequently, its DER has risen from 1.1X in Mar'11 to 1.4X in Dec'11. Order inflows were dismal during the quarter at Rs1.4 bn - attributed to delayed finalizations of orders by customers. Consequently, order book declined 18% yoy and 8% qoq to Rs36.0 bn (1.5X FY12E revenues) - split as (1) MBL - Rs29.9 bn (2) MSE - Rs2.8 bn and (3) CMT - Rs3.3 bn. However, MBL is L1 in orders worth Rs8.6 bn - expected to be finalized over the next couple of quarters. Including the L1 orders, MBL's order book stands at a robust 44.6 bn with healthy book-to-bill ratio at Rs1.9X."

"MBL has witnessed healthy order backlog and sustained momentum in order inflows (including L1 orders) - amongst few in our ECG universe. However, same has not resulted in any significant improvement in standalone operational performance, which remains amongst the lowest in its peer set (excluding one-offs). The operational performance of MSE (product business) has also deteriorated. MBL's ROE remains at a low 14% (FY12E) (on back of high DER and low operating margins across segments). We foresee no rerating catalysts in near term. We downgrade the stock to HOLD with revised price target of Rs 135 per share (@7X FY13E earnings)," says Emkay Global Financial Services research report.

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