Lanco Infratech (Lanco) reported consolidated PAT for Q4FY10 and FY10 of INR 1.13 bn and INR 4.6 bn against our estimates of INR 1.9 bn and INR 5.6 bn, respectively The company, as a tax efficient measure, has changed the depreciation policy for thermal power plants to WDV method (~15%) from the earlier SLM (~5.3%), translating into higher charge on profits and leading to lower earnings. EPC margins were lower at 11% compared to 13% in Q4FY09 and 15% in FY10 due to higher proportion of equipment sales booked during the quarter.
300 MW of Amarkantak I has been commercialised and the entire revenue since June 2009 has been booked in Q4FY10. Kondapalli II (open cycle) operated at ~91% PLF.LITL has offered ~20% discount to its Lanco Hills customers [real estate business] and, hence, revised revenues retrospectively. This has resulted in INR 464 mn FY10 segment EBIT loss.
Edelweiss in a report said,
Though there are upsides from ~4.7 GW projects that are part of the EPC order book, they are yet to achieve financial closure. However we believe key risks are: (1) timely project execution; (2) margin pressure in EPC; (3) sustaining merchant sales at Amarkantak I; and (4) delay in real estate sales. At CMP of INR 61, the stock is trading at 12.5x and 2.6x FY12E EPS and P/BV, respectively. We continue to maintain ‘HOLD/Sector Outperformer’ recommendation/rating.
Bofa Merril expects EPS of Rs 4.04 for FY 11 and said
Lanco is set to reach 4GW of operational capacity over next year and is well positioned to benefit from higher merchant tariff near term with 766 MW of merchant capacity. We raise PO to Rs70 and maintain Buy.
Kotak said,
We remain optimistic on the earnings growth of LITL contributed by 666 MW of merchant sale in the near term, and maintain our BUY rating with a revised PT of Rs70.
