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Lanco Infratech (BOM:532778) |
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WIKI ANALYSIS|
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Company Description
Lanco Infratech Limited (LITL) is an integrated infrastructure development company operating in India. The Company and its consolidated subsidiaries and associates are engaged in construction; engineering, procurement and commissioning (EPC); infrastructure development; power generation; power trading; power development, and development of expressways. LITL is involved in development of infrastructure facilities, including EPC services for industrial structures, water supply, mass housing, institutional buildings and expressways. Lanco Hills Technology Park Private Limited (LHTPPL) is involved in the development of an integrated information technology (IT) park named Lanco Hills in 100 acres of land at Manikonda, Hyderabad. The project consists of IT office space, residential buildings, retail and commercial complex. The Company’s subsidiaries include Aban Power Company Limited (APCL), Lanco Electric Utility Limited (LEUL) and Lanco Amarkantak Power Private Limited (LAPPL). With near flawless execution, relatively water tight contracts for fuel, and an increasing share of merchant capacity from 21% in FY10 to 26% in FY15E, Lanco is well-poised to reap extraordinary returns. While PLFs should drop beyond 2013E, it is unlikely that investors will begin to factor in this into valuations now, given the past slippages and tenuous nature of demand though we have estimated lowers PLFs from FY15E onwards. We initiate coverage on Lanco with a Buy to a price target of Rs 85, an upside of 39% from current levels. jnjn
Rationale
Highest rated private sector IPP on our scorecard
Lanco has coal linkages for 100% of its expansion projects and all the other necessary clearances to proceed with construction. We expect that Lanco will be able to take up the new expansion projects only by FY12E given the gaps in cash flows. Among the new projects, we expect the company to take up only Babandh-I and II while Vidarbha project could get delayed due to equity shortfall.
Capacity growth on fast track
We estimate sales volume to increase from 9,109Gwh in FY10E to 49,028Gwh in FY13E as expected capacity addition is till 4,302MW. We expect sales revenues to increase at a 37% CAGR from its current levels till FY13E.
Returns, profitability strong till 2013E
Given our broad demand-supply outlook, we estimate that projects that come up before FY14E will continue to earn returns >25% until FY14E. We estimate EPS to grow seven-fold over FY10-13E; ROE is expected to increase from 17% in FY10E to 42% in FY13E. EPC revenue is estimated to grow at a 17% CAGR till FY13 and EBITDA by 150% from current levels.
Valuation
price target of Rs 85 is derived by using the sum of the parts method. Of this, the power segment accounts for Rs 61/share that has been derived using FCFE. The key risks specific to stock are its sensitivity to, merchant tariffs, EPC business margins and discount rate.
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