Jyoti Structures Limited - 2QFY09 update

JSL’s 2QFY09 numbers were inline with our estimates. Top line grew by 32% yoy to Rs4.2bn & bottom line growth of 18.5% yoy to Rs201mn. EBITDA margin stood at 11.9% down 61bps yoy. The recent correction in the stock price has brought the stock in to value zone where it trades at less then 4.4x its FY10F consolidated EPS. We are revising our target price downward by cutting the target PE multiple from 12x to 7x on account of challenging macroeconomic environment. We maintain BUY.

.. JSL’s 1QFY09 sales were in line with expectation, Sales at Rs4.21bn up 32.3% yoy (expected Rs4.26bn). EBITDA margins stood at 11.9% down by 61bps yoy (11.8%) on account of raw material cost up 40% yoy at 67% vs 63.3% in 2QFY08 & staff cost up 39.6% yoy at 3% vs 2.8% in 2QFY08. However other expense was up only by 12.1% yoy at 18.1% vs 21.3% in 2QFY08. Interest expense stood at Rs174.3mn up 64% yoy (Rs160.6mn). However PAT was marginally above our expectation at Rs201.1mn up 18.5% yoy (Rs197.8mn) due to lower tax provisioning at 35.6% (39.1%).

.. Order book stood at Rs36bn. The order book consists of 60% from transmission line, 20% from substation & remaining 20% from rural electrification. Domestic orders were worth 85% of the total order book while the remaining 15% consist of exports & deemed exports. Management expects ~Rs58bn (Rs30bn in transmission line, Rs6bn in rural electrification & another Rs21bn in substation) domestic jobs to be put for tendering in next couple of months. They also indicated to bid for Rs7-8bn worth of international orders.

.. We keep our forecast intact however revise downward our target price on account of challenging macroeconomic environment. We cut our target PE multiple from 12x to 7x. Planned expenditure on T&D in the 11th five year plan & current order book provides visibility on account of revenue going forward. We retain our positive outlook on the company & maintain BUY. At CMP of Rs63, JSL is trading at 5.5x FY09F consolidated EPS of Rs11.3 & 4.4x 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, higher interest cost and high institutional holding.