Buy GRSE; target of Rs 233: LKP Research

LKP Research's research report on GRSE

GRSE reported a healthy set of numbers in Q4 with topline growing by 23.6% qoq, though on a yoy basis they fell by just 6.6%. This decline was much arrested as compared to Q3, when the revenues had fallen sharply by 24% yoy. The material costs saw a contraction in Q4 as they stood at 46.4% of topline and there was a reduction in employee costs as well, as we saw some cost savings at these line items. Subcontracting costs continued with the trend of growing as they increased by 35% in FY20. EBITDA margins saw a healthy improvement at 7.6% v/s 6.4% yoy and -0.3% qoq as the company undertook a strong execution. Other income remained strong at Rs528 mn over Rs500 mn yoy. PBT grew by 9% yoy and 92% qoq to Rs798 mn, while reporting strong margins at 17.5%. Adjusted PAT came at Rs603 mn , which has doubled yoy, while margins came at 13.2%. The company delivered 5 ships in FY20 and dispatched its 105th ship to MoD of India in this quarter. Impact of COVID was very well felt in the quarter for last seven days and led to delay in one of the ASWC ship to the navy, which was planned in last week of March. GRSE in Q4 delivered the last of FPV and one LCU in the quarter. The company also led the keel of the second of the P17A warship in January 2020 and has announced to advance the delivery of the first P17A warship to Q4 FY21 or Q1 FY22. FCF of ~Rs8.7 bn stands out for GRSE in FY20. This appears mainly on the back of increased customer advances, allowing ~Rs7.2bn in increased cash and cash equivalent for the year. The company has announced Rs1.4/share of final dividend, taking FY20 dividend yield to 4.8% at ~50% payout.

Outlook

However, we prune down our estimates and target in view of COVID impact resulting in some delays in deliveries and payment from government. Maintain BUY, with a target of Rs233.

GRSE 13062020