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Jyoti Structures: Research meet extracts

Jun 19, 2008

We recently had a conference call with the management of Jyoti Structures to understand the prospects of the Indian transmission & distribution (T&D) sector and the general opportunities available in the Indian power space. Here are the key takeaways. A brief about the company
Jyoti Structures Limited (JSL) is one of the largest transmission and distribution companies in India. It provides EPC services such as designing, engineering, manufacturing, tower testing, construction to project management of transmission towers and sub-stations. 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. During the period FY03 to FY08, the company has grown its sales and profits at compounded annual rates of 38% and 197% respectively.

Extracts of the meeting
Prospects of the power sector:
The Indian power sector has literally ‘electrified’ post the 2003 period. Although the initial targets of achieving additional capacity of 40,000 MW by the end of the tenth plan (2002 – 2007) were not attained, the generation companies were able to install nearly 20,000 MW of capacity during the period. This calculates to a 50% execution rate for the period. One of the main reasons for this under achievement has been due to the supply constraints from the side of the equipment manufacturers. However, for the eleventh plan period (2007-2012), the Planning Commission of India has set up an ambitious target of adding generation capacity of 60,000 MW by 2012. Looking at the track record of this sector, realistically, this target may seem a bit overboard. However, assuming 60% of the target being achieved (36,000 MW), it would be considered as a job well executed.

  • Get to know about the opportunities in the power space

    T&D scenario: Coming to the opportunities available in the T&D space, the management did inform us that Power Grid Corporation of India Limited (PGCIL) is expected to invest over Rs 700 bn in the next 4 to 5 years while the respective state transmission corporations have planned total investments between Rs 300 bn to 350 bn for expansion and improvements of the T&D infrastructure during the same period. This holds tremendous opportunities for a T&D company like JSL.

    Also considering that the initiatives such as the Accelerated Power Development and Reform Programme (APDRP) and the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) are in place, the intention is not only to improve and expand the infrastructure throughout the nation but subsequently to bring in more investments in the form of private participation to achieve the ambitious target of ‘Power for all by 2012’. These initiatives are also expected to cut down the T&D losses, which are as high as 40% in some states. Having said that, the management did mention that there has been a considerable amount of improvement in the conditions of the SEBs (state electricity boards). Further, the company’s management also shared an interesting fact with us that, as part of the RGGVY, the states prominently play a role in identifying the areas for rural electrification, while the investments for the same are done by organisations like PGCIL.

    Peer comparison: The company’s peer group includes KEC International, Kalpataru Power Transmission and Larsen & Toubro in the T&D space. Comparatively, due to a significant presence in the international market, KEC is the largest player among these companies. However, in the domestic space, the market share amongst these companies is equally divided at approximately 18%.

    In FY08, JSL’s exports contributed nearly 15% to its revenues as compared to 25% levels prior to 2003. To grab the opportunities from the strong investment and power generation focus of the tenth five-year plan, JSL shifted its focus towards the domestic segment. The company’s management believes that a similar traction in investments in the T&D segment should continue going forward.

  • Jyoti Structures’ FY08 result analysis

    Going global: The management further stated that there are high levels of investments taking place in Africa and the Middle Eastern regions, especially in the infrastructure space. As such, the company started initiatives in the form of joint ventures (JVs) to foray into these markets. The company has 30% stake in the Gulf Jyoti International (UAE) and 70% in the South African JV. The company also completed its 33,000 tonne (on double shift) capacity expansion during the last fiscal, which will primarily focus on supplying towers for their international contracts. With the completion of this expansion, the company’s total installed capacity has risen to 95,800 tonnes per year.

    Going forward…
    As on April 2008, the company had an order backlog of Rs 31 bn (2.3 times its FY08 revenues), thus having clear visibility for future growth. However, the main concerns for the company will be execution risks and the rising raw material prices. The company’s management did mention that one of their major concerns is to be able to complete their projects on time. As regards to input costs, the company witnessed a marginal dent in its operating margins (0.4%) on account of higher input costs.

    The company has planned capex of nearly Rs 600 m to Rs 700 m for the current fiscal, of which about 80% is planned for purchasing construction equipment while the balance will be used for upgrading their current facilities and infrastructure. The average capex is expected to be in the levels of Rs 200 m going forward.

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