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Jyoti Structures: Maintains the momentum

Nov 21, 2008

Performance summary
  • Standalone net sales grow by 32% YoY in 2QFY09, 34% YoY in 1HFY09.

  • Operating margins contract by 0.6% YoY during the quarter on account of higher raw material costs (as percentage of sales).

  • Net profits grow by 19% YoY during the quarter. Profits grow comparatively slower due to decline in operating margins and higher interest costs.

  • Order book at the end of September 2008 stood at Rs 36 bn (nearly 2.6 times its FY08 sales).

Standalone financial snapshot
(Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Net Sales 3,182 4,208 32.3% 6,148 8,218 33.7%
Expenditure 2,783 3,707 33.2% 5,383 7,237 34.5%
Operating profit (EBITDA) 398 501 25.8% 766 981 28.2%
Operating profit margin (%) 12.5% 11.9% 12.5% 11.9%
Other income 4 4 -7.5% 5 7 51.4%
Depreciation 16 18 13.8% 32 35 9.6%
Interest 106 174 64.1% 202 308 52.7%
Profit before tax 280 312 11.4% 537 645 20.3%
Tax 111 111 0.5% 207 239 15.6%
Profit after tax/(loss) 170 201 18.6% 330 407 23.2%
Net profit margin (%) 5.3% 4.8% 5.4% 4.9%
No. of shares (m) 81.2
Diluted earnings per share (Rs)* 9.9
P/E ratio (x)* 6.1
* On a trailing 12-months basis

What has driven performance in 2QFY09?
  • Jyoti Structureís (JSL) topline grew by 32% YoY during 2QFY09. Due to its healthy order book the company has been able to grow its sales on account of higher tonnage production. During 1HFY09 the company has achieved production of about 40,019 tonnes as compared to 75,000 tonnes achieved in FY08. The management expects the company to achieve almost 100% capacity utilisation i.e., 95,000 tonnes for the current year. JSLís transmission lines business contributed to nearly 55% of the revenues, while the balance was shared by the rural electrification (20%) and substations segments (25%). This comes in contrast to its previous quarter (1QFY09) when its transmission line business contributed to about two-thirds of the topline and the rural electrification and substations contributed 14% and 20% respectively.

  • During the quarter, JSL executed projects worth Rs 4.3 bn. At the end of September 2008, its order book stood at Rs 36 bn (Rs 35.6 bn at the end of 1QFY09).

  • During 2QFY09, JSLís operating margins contracted by 0.6% YoY mainly on account of higher cost of raw materials. These costs increased by 44% YoY and stood at 69.6% of sales as compared to 64% during 2QFY08. As the company is protected by a price variation clause, it has been able to mitigate the fall in operating margins to a certain extent. Nearly 80% to 85% of the companyís contracts are protected by the price variation clause. In fact, its export contracts are fixed price contracts. Therefore, the company is likely to benefit from the falling commodity prices going forward.

  • As compared to its operating margins, JSL has taken a hit on profits on the back of a substantial rise in interest costs. These costs increased by 64% YoY during 2QFY09. As per the companyís management, JSLís interest rates increased to 11% during the quarter, as compared to the earlier rate of 9.5%.

What to expect?
At the current price of Rs 60, the stock is trading at a multiple of 6.1 times its trailing twelve months earnings. At the end of the September quarter, JSLís order backlog stood at Rs 36 bn, of which domestic contracts have a share of 85%. The balance is shared between exports (6%) and deemed exports (9%). Further broken down, 60% of the projects are transmission line projects, 20% are substation and 20% rural electrification projects. In addition to this, the company has bid for orders worth Rs 7 bn to 8 bn in the international markets, primarily Tanzania, Namibia and Tunisia.

As far as its international ventures are concerned, the companyís Middle Eastern venture, Gulf Jyoti received orders worth 104 m Dirhams (approximately Rs 1.4 bn) from Hyundai (supply of towers) and 377 m Dirhams (approximately Rs 5.2 bn) from Dubai electricity Water Works, which is likely to be executed over a period of 2 years. As for its African venture, it has not received any fresh orders since February 2008.

The stock of JSL is down almost 80% from its 52-week high of Rs 327. As the company is highly dependent on the investments towards the transmission and distribution segment, the stock has been at the receiving end on account of slowdown in the economy. Countering the same, the companyís management during its conference call had stated that it expected tenders worth Rs 58 bn to be announced during the next two months. The breakup of the same is Ė Rs 30 bn towards transmission lines (of which PGCIL is Rs 16 bn), Rs 21 bn towards substations (of which Rs 12 bn is from PGCIL) and Rs 7 bn towards rural electrification (from state electricity boards). The management further added that tenders worth Rs 60 bn are expected from REC and PFC during the current quarter. In addition to this, tenders worth Rs 80 bn are expected from the MSTCL (Maharashtra State Transmission Company Limited) for substation and transmission packages.

Majority of JSLís clients are PSUs. While the management has been time and again stating that the financial conditions of these agencies have been improving, the fact that debtor days continue to remain at high levels of 125 days, remains an area of concern.

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