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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 May 11, 2012 report.

June 04, 2012 / 06:12 PM IST
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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 May 11, 2012 report.

Spanco Ltd’s March 2012 standalone numbers were in line with CRISIL Research’s expectations. Revenue growth during a seasonally strong quarter was driven by higher revenue booking from R-APDRP projects and the telecom vertical. The Nagpur DF project was transferred to a subsidiary in the previous quarter and is not a part of standalone results. Due to this, EBITDA and PAT numbers of this quarter are not comparable with the previous quarter. As per the management, revenue from Nagpur DF was ~Rs 1,250 mn against Rs 1,200 mn in the previous quarter. Spanco group continues to face liquidity issues at the parent level due to high working capital requirement. Ability to raise additional funds and timely servicing of debt are key monitorables. We maintain our fundamental grade of 3/5.

March 2012 standalone result analysis
• Spanco’s standalone revenues (ex-Nagpur DF revenues for both the quarters) increased by 18% q-o-q (up 1.7% y-o-y) to Rs 4,621 mn driven by higher revenues from R-APDRP and telecom projects.

• EBITDA margin improved 151 bps y-o-y to 14.2% due to lower raw material costs. Q-o-q improvement in EBITDA margin was a result of exclusion of the lower-margin Nagpur DF business (~4-6% EBITDA margin) this quarter from standalone numbers.

• PAT margin declined 64 bps y-o-y to 4.5% due to higher interest costs on account of higher debt raised to fund Nagpur DF and other ventures. Accordingly, PAT declined 11.1% y-o-y to Rs 207 mn. EPS for the quarter was Rs 6.6.

Key developments
• Spanco’s credit rating was downgraded from CARE B to CARE D on April 6, 2012 due to delays in servicing of debt obligations. The grade was then revised on April 30, 2012 to CARE C. According to the rating agency, this was due to an improvement in the collection period and consequent improvement in the debt servicing by the company.

• Spanco’s promoter has pledged ~86% of his shareholding primarily in order to raise loans for the company. According to the management, debt fund raising process for Nagpur DF is in the final stage and will help ease the current liquidity issue.

• For Spanco, FY11 extended from April 2010-September 2011 (18 months) as against the normal 12 months. Accordingly, FY12 was a six-month period from October 2011-March 2012. The company is back to the normal reporting period of 12 months and FY13 will be from April 2012-March 2013.

Valuations: Current market price has strong upside
We continue to use the sum-of-the-parts method to value Spanco. Post further interaction with the management, we will introduce FY13 forecast and revisit our estimates and fair value. At the current market price of Rs 69, our valuation grade is 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.

© CRISIL Limited . All Rights Reserved. Published under permission from CRISIL"

first published: Jun 4, 2012 06:09 pm

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