Madhucon Projects – Value Unlocking holds the key – Q3FY12 Update – Buy, TP INR90 – Upside : 34% – Elara Madhucon Projects – Value Unlocking holds the key – Q3FY12 Update – Buy, TP INR90 – Upside : 34% – Elara

February 20, 2012

Strong quarter, results ahead of estimates

MPL surprised positively delivering revenues of INR6.2bn (+77.5% YoY) driven majorly by construction work across in-house assets in power (66%); OPMs though declined 429bps YoY to 8.4% owing to a substantial rise in lower margin construction income booked on the BTG component pertaining to Phase II of the Krishnapatnam power project. Net profits at INR75mn stood ahead of estimates.

MPL continues to maintain a healthy order backlog at ~INR69bn (2.8x FY13E revenues). Among the new jobs bagged during the quarter include irrigation EPC works from Sardar Sarovar Nigam, Gujarat (INR2bn), an INR4.3bn mining project and Vijayawada Machilipatnam road BOT (INR7bn). MPL has also been declared as preferred bidder for setting up a 300MW mine mouth power project in Indonesia.

Funding remains critical for asset business’s further progress

Roads – MPL has infused equity worth INR4bn across its four operational and one under construction road BOT assets till date. Over the next 2.5 years, it needs to infuse an additional equity worth INR11.5bn across its three recently won assets, for which negotiations remain at an advanced stage with PE players for a possible stake dilution in Madhucon Toll Highways Ltd (MTHL).

Power – MPL has revised the timeline for commercial production commencement from its Phase I (300MW) thermal power plant further to Mar’12. Work on Phase II (300MW) remains on track (80% completed) as the company hopes to commission the same by Sep’12.

Maintain ‘Buy’, Mar’13 based TP of INR90

We maintain our ‘Buy’ recommendation backed by an impressive order book position offering revenue predictability coupled with a potential re-rating trigger in stake dilution across the road and power asset businesses in the short term.



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