CMP: Rs. 146          Recommendation: BUY at Declines

Background

The company has a diversified business model and it operates in the infrastructure space while focusing on verticals like cement, real estate, hospitality/hotels, sports arena, wind power and construction and EPC businesses.

The company recently commenced operations at the Gujarat facility which has the capacity to produce 2.4 million tonne of cement per annum. The total installed plant capacity has increased to 17.1 million tonne per annum. Of the 13,470MW in JVPL project with around 700MW of power are operational while the remainder are under progress.

The company has also got exclusive rights by entering into an agreement with Formula-1 (F1) for a period of 10 years to develop an F-1 track in the NCR region for conducting  the first ever F-1Grand Prix in India in 2011.

Analyst's Note

The company posted good Q3 FY10 results. The topline of the company for the quarter ended Decemeber 2009 showed improvement as it stood at Rs. 2,964 crores mainly due to robust growth in the Construction & EPC (C&EPC) sales. This enabled the company to post an EBIDTA margin of ~30 per cent  for the quarter ended December 2009.

The construction division posted a growth 130.3 per cent y-o-y growth to Rs. 1,643 crores on the back of improved sales. The cement division also contributed to an overall increase in margins by posting an ~61 percent growth in revenues due to increased installed cement capacity. However, the reported PAT de-grew by ~39 percent y-o-y primarily due to increase in extraordinary expenses on account of employee compensation expenses(ESOP’s) amounting to Rs. 212 crores.

During the quarter the company issued bonus share in the ratio of 1:2. The FCCB’s aggregating to USD 100 million also got converted into 9,264 equity shares of Rs. 2 each for a pre determined price of  Rs. 47.26 per share.

For 9M FY10 the company has been able to sell nearly 12.5 million sq. ft of land which is comparable to its peers.

Investment Argument

The treasury stock sale in the month of December 2009 has caused the stock to underperform as compared to the broader market.

However, given the robust Q3 FY10 performance, renewed thrust by the Government on infrastructure development in Budget 2010-11) and a pick up in demand from the real estate sector, revenues for the company are likely to improve over the next few quarters.

Given the satisfactory growth prospects of this company,  investors can consider accumulating this stock at price declines.