Sell HEG; target of Rs 150: ICICI Direct

HEG reported a subdued set of Q1FY17 numbers wherein the topline, EBITDA and PAT came in notably lower than our estimates The topline for the quarter came in at Rs 163.2 crore (down 32.5% YoY and lower than our estimate of Rs 224.9 crore) EBITDA came in at Rs 3.2 crore (down 88.1% YoY and below our estimate of Rs 21.4 crore). The EBITDA margin came in at 1.9%, lower than our estimate of 9.5% (EBITDA margin of 9.3% in Q1FY16). Consequently, the company reported a loss at the PAT level to the tune of Rs 28.9 crore, higher than our estimate of net loss of Rs 7.5 crore.

On the back of a muted demand scenario, HEG reported subdued capacity utilisation levels in Q1FY17 (50%). Subsequently, due to headwinds on the demand side, we have downward revised our capacity utilisation estimate to 55% for FY17E (from earlier 60%) and to 65% for FY18E (from earlier 70%). We value the stock on an SOTP basis valuing the core business at a 20% discount to its global peer’s CY18E average implying EV/EBITDA of 6.6x and assign a 30% discount to HEG’s stake in BEL. Subsequently, we arrive at a target price of Rs 150. We have a SELL recommendation on the stock.  For all recommendations, click here 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.