8 Apr, 2008, 1842 hrs IST, INDIATIMES NEWS NETWORK
Religare Securities has reiterated ‘Buy’ recommendation on Sujana Towers for a target price of Rs 202. At this price, the stock discounts its FY08E EPS of Rs 14.4 by 7.3 times. The current market price is Rs 107.
Sujana Towers currently trades at a P/E of 7.3 times on FY08E fully diluted earning per share. Religares maintains positive on the company in view of its strong order pipeline, expansion program and sound market strategy.
Sujana Towers is expanding its galvanised tower manufacturing capacity from 28,125 million tonne per annum to 1,28,125 mtpa, while raising its heavy structural steel product capacity to 70,000 tonne per annum. The capacity of light and heavy structures is 80,000-85,000 tonne per annum. Post-expansion, 80 per cent of the structural steel requirement of the lower division is being met through in-house production. The company currently utilizes 85 per cent of its galvanized lower capacity.
In order to meet the robust demand, it is further increasing its gavanised tower capacity by 75 per cent to 2,28,125 mtpa in Chennai, which is expected to be commissioned from September 2008. The total expansion program will cost Rs 250 crore and will be financed by debt and warrants of Rs 100 crore each, along with internal accruals. The warrants issue is expected to dilute equity by 20-22 per cent.The additional capacity towards meeting export demand for power and transmission towers from East and West Africa.
The company has a strong order book totaling Rs 300 crore, which comprises 55,000 mtpa of project work to be executed with in six months. About 70 per cent of the order book is from the power sector and balance from telecom. As a policy, the company does not take an orders which exceeds a six-month timeline to avoid variances arising from inputs costs.
The management sees huge demand for towers, both from the power and telecom sectors. In the power transmission business, the relationship with Deepak Cable continues Sujana Towers executing orders up to 400kVA. The company is making additional investment for 756kVA capacity, government board approval for which is awaited.
Religare expects Sujana Towers to witness a 50-100 basis points drop in operating margin FY09 owing to a decline in contracting business (transmission), which enjoys higher margins. It also expect the business to contribute 10-12 per cent revenues, growing at 25 per cent, while the tower business is expected to ramp up at a faster pace. It also expects the operating margin to stabillise between 14 per cent and 14.5 per cent.
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