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Jyoti Structures: Expansion led growth

May 7, 2008

Performance summary
  • Net sales grow by 41% YoY in FY08, aided by higher capacity and utilisation.
  • Operating margins contract by 0.4% due to higher raw material costs (as percentage of sales).

  • Net profits grow by 32% YoY in FY08, 17% YoY in 4QFY08.

  • Recommends dividend of Rs 0.8 per share (dividend yield of 0.5%)

Standalone financial snapshot
(Rs m) 4QFY07 4QFY08 Change FY07 FY08 Change
Net Sales 2,872 4,101 42.8% 9,708 13,704 41.2%
Expenditure 2,483 3,585 44.4% 8,454 11,985 41.8%
Operating profit (EBITDA) 389 515 32.5% 1,254 1,719 37.1%
Operating profit margin (%) 13.5% 12.6% 12.9% 12.5%
Other income 1 6 537.4% 8 15 85.3%
Depreciation 16 18 13.1% 58 67 15.2%
Interest 100 157 57.0% 329 464 41.2%
Profit before tax 274 346 26.5% 875 1,203 37.4%
Tax 110 154 40.1% 325 478 47.3%
Profit after tax/(loss) 164 193 17.3% 550 724 31.6%
Net profit margin (%) 5.7% 4.7% 5.7% 5.3%
No. of shares (m) 80.7 81.2
Diluted earnings per share (Rs) 6.8 8.9
P/E ratio (x) 19.1

What is the company’s business?
Jyoti Structures Limited (JSL) is one of India’s largest power transmission and distribution company providing EPC (engineering, procurement and construction) services such as designing, engineering, manufacturing, tower testing, construction to project management of transmission towers, sub-stations and rural electrification. Having executed projects in South East Asia, Middle East, Australia, the Americas and Africa, JSL has considerable amount of global presence and experience. The company has executed projects in over 36 countries.

What has driven performance in FY08?
  • The 41% YoY growth in JSL’s FY08 sales was largely on account of capacity expansion (capacity of 18,000 tonnes increased to 94,000 tonnes in May 2007) as also higher capacity utilisation. The company’s transmission segment garnered almost 60% share in revenues pie while the balance was divided between other segments - sub-stations (16%) and rural electrification (24%). The exports (including deemed exports) contributed 18% to the company’s topline during the fiscal.

  • JSL’s operating margins contracted by 0.4% YoY during FY08. This was mainly on account of higher raw material costs, which increased from 56% of sales in FY07 to almost 66% in FY08. Rising commodity prices (JSL’s key inputs are steel and aluminium) have led to this spike in the company’s material costs during the fiscal. However, the management stated during the conference call that the company has the ability to pass on the price escalations to clients to a certain extent (only on domestic contracts) through price variation clauses. This, they believe shall help them in maintaining margins going forward.

  • JSL’s net profits grew by 32% YoY during FY08, led by strong growth in the topline but impacted by contraction in operating margins and higher effective tax rate. As a matter of fact, JSL’s effective tax rate increased from 37.1% in FY07 to 39.8% in FY08, mainly due to FBT (fringe benefit tax) of Rs 40 m charged on the ESOPs issued during the fiscal.

What to expect?
At the current price of Rs 170, the stock is trading at a multiple of 19.1 times it FY08 standalone earnings. The management of JSL, in its conference call yesterday, has stated that it is expecting the opportunities from both, domestic and international (namely African and Middle East) markets, to grow steadily in the years to come. The company is optimistic about maintaining its strong order inflows (Rs 1,120 m in FY08), as there are enough projects to come around in the power transmission and distribution space. However, maintaining the margins will be the test for the company as the raw material prices continue to rise steadily along with JSL entering into newer regions to gain market share.

JSL has been bidding for L1 (lowest bids) contracts in regions such as South Africa, where it formed a joint venture (JV) during the fiscal and is targeting to penetrate the market. However, it is noteworthy, that in countries like Namibia and Uganda, where JSL has some experience, the company has been awarded certain L2 (second lowest) contracts despite aggressive bids from other newer entrants. The company also has an understanding with engineering major, Siemens, to together bid for EPC contracts where the sub-station portion will go to the latter while the transmission line business comes to JSL. The management has further stated that the company plan to raise capital through debt market this year and has planned a capex of Rs 600 m for FY09, mainly to upgrade its domestic facilities. JSL is also slated to benefit from its 30% stake in Dubai based Gulf-Jyoti International (GJI), a JV with Gulf Investment Corporation, Kuwait, which has a annual tower manufacturing capacity of 33,000 tonnes (on double shift). Revenues from this JV are expected to flow in from the third quarter of FY10. Apart from profit sharing, JSL will also be receiving 15% management fees from GJI’s EBITDA levels. The company is also expecting to benefit from the expenditure from public and private sectors to achieve the ambitious “Power for all by 2012” plan and other initiatives like “Bharat Nirman” to maintain momentum in its rural electrification and substation businesses. At the end of March 2008, the company had an order backlog of Rs 31.2 bn (2.3 times its FY08 net sales).

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