CRISIL maintains valuation grade of 5/5 to Marg

CRISIL Research has come out with its report on Marg. The research firm has maintained the fundamental grade of 3/5 to the company in its May 16, 2012 report.

Marg Ltd’s Q4FY12 standalone results exceeded CRISIL Research’s expectations. Betterthan- expected revenues from the external EPC business, higher margins and lower interest costs led to higher-than-expected performance at the standalone level. Our back-of-theenvelope calculation suggests that consolidated revenues and earnings for FY12 are significantly below our expectations due to muted performance by the real estate business on account of demand slowdown. We maintain our fundamental grade of 3/5. We will revise our estimates downwards post interaction with the management.

Q4FY12 and FY12 result analysis - standalone
• Revenue grew 9% y-o-y to Rs 3.9 bn in Q4FY12 due to growth in the external EPC business but declined 19% q-o-q due to lower revenues in the internal EPC business. FY12 revenues grew 38% y-o-y to Rs 15 bn driven by 26% growth in the external EPC business and 60% growth in the internal EPC business.

• EBITDA margin declined 580 bps y-o-y to 6.8% in Q4FY12 due to higher contribution from the low-margin external EPC business, which contributed ~75% to the top line vs. 30% in Q3FY12 and 64% in Q4FY11. EBITDA margin for FY12 declined 281 bps y-o-y to 8.6%.

• Interest costs declined 82% y-o-y to Rs 18 mn in Q4FY12. We believe this was due to lower debt as the company probably utilised proceeds of Rs 1,000 mn from Ascent Capital to retire debt at the parent level. We will provide further clarity on the same post discussion with the management. PAT declined 18% y-o-y and q-o-q to Rs 150 mn as lower interest cost partially offset the decline in EBITDA margin. For FY12, PAT declined 4% y-o-y to Rs 574 mn.

Analysis of subsidiaries’ performance - port and SEZ
• Karaikal Port’s revenues grew 30% y-o-y to Rs 2,200 mn in FY12 driven by 27% growth in traffic to 6.01 mn tonnes and 2.5% growth in realisations to Rs 366 per tonne. EBITDA margin declined 150 bps y-o-y to 45% in FY12 due to lower contribution from high-margin coal cargos. PAT grew 32% y-o-y to Rs 320 mn in FY12.

• Recently, the company has signed term sheet with the PE firm Jacob Ballas for primary investment of Rs 1,000 mn in the port. Jacob Ballas has also acquired ~8% stake for Rs 1,000 mn from IDFC, who had invested Rs 1,500 mn in September 2010. We believe Marg’s stake in Karaikal Port post this transaction will reduce to ~62% from 70%.

• SEZ reported 55% y-o-y decline in revenues to Rs 880 mn in FY12 due to lower bookings on account of slowdown in demand. Due to muted traction, EBITDA margin declined ~1,200 bps y-o-y to 14.8% in FY12.

Valuations: Current market price has strong upside
We continue to value Marg by the sum-of-the-parts method. Our fair value is Rs 267 per share. We will revise it downwards post interaction with the management. At the current market price of Rs 86, 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.

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