Maintain ‘buy’ on Lanco Infratech with an SoTP-based target price of Rs 9 per share. Resolution of regulatory issues seems to be behind us and progress on asset / stake sale leading to reduction in debt will determine stock performance.
Lanco’s Q2FY16 adjusted loss was in line at ~Rs 470 crore. EPC operations have resumed and normalised activity is expected going forward with quarterly revenue of ~Rs 1,500 crore and ~11-12% ebitda. Kondapalli expansion is expected to be commissioned by Q3FY16 end; with the recent gas pooling initiative, it is expected to operate at ~50% PLF.
Resolution of pending issues at both Anpara and Amarkantak is expected to improve cash flows. Management plans to induct strategic partners at the power asset level and Griffin asset, which will deleverage balance sheet and help in equity infusion for under construction assets. Recovery in financials is expected to be gradual, due to the inherent asset value.
While operational performance of power/resources segments was in line, EPC reported adjusted EBIT of ~R1 billion (~R144 million in Q1FY16 and R253 million loss in Q2FY15) on account of revival of internal project execution resulting in revenue rising 5x q-o-q and 2x y-o-y. Griffin sales remained flat q-o-q at 0.6 million tonnes with marginal improvement in realisations.
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