Jyothi Structures

JSL’s 1QFY09 revenue numbers were inline with our estimates however EBITDA and PAT were below our expectation. Increase in raw material cost and higher interest expense drag down these numbers. We are revising FY09 and FY10 PAT forecasts downwards by -16.5% and -18.8% respectively and cutting our target PE multiple from 15x to 12x. We maintain Buy with a revised target price of Rs170.

JSL’s 1QFY09 sales were in line with expectation, Sales at Rs4bn up 35.4% yoy (expected Rs4bn). EBITDA margins stood at 12% down by 40bps yoy (12.7%) on account of higher raw material cost at 65.8% (64.9%) vs 59.4% in 1QFY08. PAT was below expectation at Rs205.4mn up 28% yoy (Rs237.5mn) due to increase interest expense. Interest expense stood at Rs133.7mn up 40% yoy (Rs107.8mn).

Order book stood at Rs35.6bn. JSL is L1 in another Rs4bn worth of orders. Management expects ~Rs16.6bn (Rs8.5bn in transmission line and Rs8.1bn in rural electrification) domestic jobs and ~Rs24bn of international jobs to be put for tendering in next couple of months.

Order book at the African subsidiary stands at Rs2.4bn and Gulf Jyoti has an order book of Rs1.6bn.

We keep our revenue target intact however revise downwards our EBITDA forecast for FY09 and FY10 by -5.9% and -5.2% respectively. We reduce our EBITDA margin forecast for FY09 and FY10 by -70bps each to 11.8% taking into account higher raw material prices. Even though 1QFY09 stood at 12%, we expect margins to remain under pressure for rest part of the year. Hence we expect full year EBITDA margins to be 11.8%. Our PAT forecast is significantly lower by -16.5% and -18.8% for FY09 and FY10 forecast on account of lower operating margins and incorporating higher interest cost. We retain our positive outlook on the company and maintain Buy. At our revised target price of Rs170, JSL would trade at 14.9x FY09F consolidated EPS of Rs11.3 and 12x FY10E consolidated EPS of Rs14.1. Higher order winning could likely see a re-rating in the stock. The key risk for the stock would be further margin pressure due to higher raw material price and high institutional holding.