Share Market Update on Jyoti Structures for 4QFY2011

Share Market Update on Jyoti Structures for 4QFY2011 with a Buy recommendation and a Target Price of `104 (12 months).

    For 4QFY2011, Jyoti Structures (JSL) reported higher-than-expected results. Revenue and PAT grew by 31.9% yoy and 38.4% yoy, respectively. Order inflow of `1,100cr for the quarter was a positive surprise. We maintain our Buy view.

Execution picks up; Margins surprise: Strong revenue growth of 31.9% yoy was primarily due strong execution during the quarter. Notably, management had earlier guided higher execution in 4QFY2011 to meet contractual obligations.
For FY2011, JSL’s revenue posted 18% yoy growth to `2,380cr (`2,016cr). EBITDA margin stood at 11.6% in 4QFY2011, higher by 80bp from our estimates of 10.8%. However, JSL reported lower margin as compared to 4QFY2010, mainly due higher sub-contracting expense during the quarter. Higher sales volume coupled with lower raw-material costs aided margin improvement, resulting in EBITDA growing by 18% yoy to `84cr (`71cr). Strong revenue growth, margin expansion and higher other income resulted into PAT growing by 38.4% yoy to `35cr (`25cr). For FY2011, PAT increased by 20.7% to `111cr (`92cr).

    Outlook and valuation: Order inflows from PGCIL were relatively lower during FY2011. However, industry commentary indicates that ordering activity from PGCIL is likely to gather pace after 1HFY2012, which should improve the visibility for the coming years. Apart from transmission projects, JSL is also expected to garner significant portion of orders from RAPDRP and RGGVY schemes. The current slowdown in the T&D space weighs heavily on the stock; however, a revival in ordering activity will envisage strong prospects. However, we remain cautiously optimistic on the stock and revise our estimates to factor in the current slowness in the T&D space. We assign a multiple of 6.8x FY2013 EPS to arrive at a revised target price of 104 (`110). We maintain Buy on the stock.