Madhucon Projects Ltd.- BUY

Madhucon Projects Ltd. BUY

Value unlocking begins

Price Rs 701 Target Price Rs903

Madhucon Projects Ltd reported its Q3FY08 numbers which were marginally ahead of our expectation. The company reported revenues of Rs2.01 billion up 67% y-o-y. The EBITDA grew 62.6% y-o-y to Rs272.5 million and PAT was at Rs129.8 million up 32.7% y-o-y.

The company has focussed on executing the orders on hand during the current fiscal and has not bidded aggressively for any new projects. Although the Order / bill ratio has come down from 8.6x at the end of FY07 but is still healthy at 5.5x TTM revenues at the end of 3QFY08. We expect the company to maintain its growth and expect the revenue and PAT to grow at a CAGR of 48% and 36% respectively. The company’s diversification into the related field of infrastructure development have also started taking shape now with each of the projects moving forward from the planning stage to actual execution and construction. The company expects to start the commercial production from its coal mines in Indonesia beginning FY09. The toll based BOT projects are also well on track with construction work underway in all the projects.

We value the company on a SoTP based approach assigning a value of Rs342 per share to the core construction business (at 12x FY10E EPS of Rs28.5), the toll based road BOT projects at Rs141 per share (2.0x FY09E P/BV), first phase of power project at Rs84 per share (2.0x FY09E P/BV), coal mine in Indonesia on NPV basis at Rs290 per share and the company’s land in hyderabad at Rs45 per share (Land value if sold as is). We believe that the company’s presence in various infrastructure verticals will present a great value unlocking potential going forward. We maintain our ‘BUY’ rating on the stock with a revised target price of Rs903.

Source:

MK, 4 February 2008, Sensex - 18,243