Buy Madhucon Projects; target of Rs 109: PINC Research

October 10, 2011

Buy Madhucon Projects; target of Rs 109: PINC Research

PINC Research is bullish on Madhucon Projects and has recommended buy rating on the stock with a target of Rs 109 in its October 3, 2011 research report.

Phase I power project to be synchronized: Phase I power project of 300MW of the 1,920MW at Nellore, AP is likely to be synchronized in a month’s time. MPL has arrangement with PTC for 100% of coal supply from 70% earlier for phase I and for phase II, PTC will supply 50% of the coal requirement.

Rate revised upward to Rs1.45/unit: The conversion rate for PTC power contract has been increased to Rs1.45/unit for Phase I and Rs1.50/unit for Phase II from earlier rate of Rs1.25/unit for phase I. This is largely due to delay in plant completion and rationalization of cost.

Dilution on card; looking at Rs16-22bn for MTHL: Madhucon is looking for dilution in Madhucon Toll Highway (MTHL) & Simhapuri Energy Pvt. Ltd. (SEL) and is actively scouting for private equity deals. The company’s internal valuation for MTHL is ranging from Rs16-22bn and for SEL is Rs30bn (including phase III).

L1 in Vijayawada-Machilipatnam road project: The company is L1 in Vijayawada-Machilipatnam project on DBFOT toll basis. The project involves four laning 63km (258 lane km) of existing section on NH9.

Orderbook at Rs62.7bn; 3.7x FY11 revenue: Orderbook continues to be strong at Rs62.7bn (3.7x FY11 revenue), largely due to internal orders of road and power. Excluding Andhra Pradesh irrigation project of Rs13bn, book to bill ratio stands at 2.9x FY11 revenue.

“We revise our target price to Rs109 from earlier Rs141 due to a) increase in cost of equity for BOT road and power phase I projects to bring it inline with the current market risk, resultantly we have raised cost of equity to 15% from 13%. b) Earlier we had valued mining project at one time equity investment i.e. Rs410mn (Rs5 per share), now we wait till the logistical issue is resolved. c) The core EPC business earnings have been revised downward by 4.1% and 16.7% for FY12E and FY13E due to higher interest cost factored at 11.5%, now the total debt in MPL stands at Rs7.5bn (1.1x D/E FY11) and is likely to increase to 1.3x by FY12 end. We maintain our ‘BUY’ recommendation,” says PINC Research report.

Attachments : MadhuconProjects_PINC_031011.pdf


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