Hold Lanco Infratech; target of Rs 15: Emkay

Emkay Global Financial Services has recommended hold rating on Lanco Infratech with a target of Rs 15 in its August 21, 2012 research report.

“Lanco Infratech Ltd was incorporated in 1993. Company has a diversified business model with presence in civil construction, power EPC including solar, power generation and coal mining (owns Griffin coal mine in Australia). It owns and operates 3.3GW of generation capacity with another 5.4GW is underconstruction. It came up with an IPO in 2006 at Rs240 per share.”
 
“1Q13 consolidated adjusted loss stood at Rs2.9bn against our estimate of Rs1.7bn of loss largely on account of (i) Rs329mn of loss at Udupi, (ii) higher losses in Anpara (Rs1.8bn vs Rs1.3bn estimated), (iii) Rs199mn of losses reported at Amarkantak and (iv) lower margins in EPC segment due to cost overruns in projects. Higher losses at Anpara were primarily on account of (1) higher under recoveries due to lower plant availability factor and (2) forex losses. Coal handling related constraints at Anpara restricted its PAF to 60% in 1Q13. EBIT margins in EPC segment have also dropped significantly on yoy basis due to cost overruns in various projects. 1Q13 EBIT margins of EPC business stood at 6.2% vs 16.7% in 1Q12 and 8.2% in 4Q12. 1Q13 generation stood at 4.2BU, up by 6%qoq and 46%yoy led by 1.3GW of capacity addition since 1Q12.”
“Though management expects interim tariff order on Udupi very soon (in August’12 itself as per press release), clarity over Anpara and Amarkantak-II is still awaited. We will take a call on earnings post 2Q13 based on how events (fuel handling issues at Anpara, tariff order for Amarkantak-II, interim order for Udupi) will pan out for Lanco during the period.”
“Stock has recently corrected sharply and is currently trading at 0.5x FY13E book. However, upside is dependent upon (i) fuel supply especially at Kondapalli-II, (ii) tariff approvals for Amarkantak-II/Udupi, (3) clarity on Anpara fuel supply logistics, (4) production ramp up and cost reduction at Griffin and (5) cost overruns in EPC business projects. We believe that clarity over the above issues will hold the key and drive the future earnings. We maintain Hold on the stock with revised price target of Rs15/sh," says Emkay Global Financial Services research report. Shares held by Central Governments/State Governments Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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