LANCO INFRATECH LIMITED BUY Target Price:Rs.54.00 CMP: Rs.42.00 Market Cap: Rs.101127.8mn. Date: 5 Feb,2010. Key Ratios: Particulars FY09 A FY10E FY11E OPM(%) 16 18 18 PAT(%) 6 8 8 ROE(%) 13 18 18 ROCE(%) 24 29 29 P/BV(x) 0.44 3.87 3.17 P/E(x) 3.29 21.38 17.53 EV/EBDITA(x) 0.98 8.27 7.87 Debt Equity(x) 0.64 0.57 0.52 Key Data: Sector Infrastructure Face Value 1.00 52 wk. High/Low (Rs.) 60.70/10.86 Volume (2 wk. Avg.)(lakh) 22.05 BSE Code 532778 SYNOPSIS • Lanco Infratech Limited is one of India’s top business conglomerates and among the fastest growing. Lanco Infratech has subsidiaries and divisions across a synergistic span of verticals. • These include construction, Power, EPC, Infrastructure and Property Development. Lanco Infratech’s projects, operational and underway, are spread across India. • At present, the power portfolio includes an operating capacity of 1,044 MW and additional capacities under various stages of implementation aggregating to more than 10,000 MW. • The Construction and EPC division of the company is executing various orders worth more than Rs 209 billion. • The company is developing 163 Kms of National Highways on BOT basis. • The topline of the company is expected to grow at a CAGR of 38% over 2008A to 2011E. Share Holding Pattern: V.S.R. Sastry Vice President Equity Research Desk 91-22-25276077 [email protected]Dr. V.V.L.N. Sastry Ph.D. Chief Research Officer [email protected]
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Peer Group Comparison .............................................................................................................................. 10
Outlook and Conclusion .............................................................................................................................. 18
Industry Overview ....................................................................................................................................... 18
Investment Highlights
• Results Updates (Q3 FY10)
The bottomline of the company for the quarter increased at 34% yoy that is Rs.1068.40mn
from Rs.798.78mn of same period of last year. Total revenue for the third quarter stood at
Rs.16107.10 mn from Rs.18202.31 which is 11.5% decreased than that of a year ago period.
EPS for the quarter stood at Rs.4.48 per equity share of Rs.10.00 each.
Expenditure of the company decreased 19% YoY to Rs.13007.4mn from Rs.16114.84mn of
same period of last year. Interest expenses for the quarter stood at Rs.568.9mn. OPM &
NPM for the quarter stood at 21% and 7% respectively.
Quarterly Results – Consolidated (Rs in mn)
As at Dec - 09 Dec - 08 %Change
Net Sales 16,107.10 18,202.31 (11.5)
Net Profit 1068.40 798.78 34
Basic EPS 4.48 3.63
Equity Capital 2382.50 2197.93
Segment-wise Revenue (Rs in mn)
As at Dec - 09 Dec - 08 %Change
Construction 13135 10434 26
Power 5152 9101 (43)
Property Dev 9 445 (98)
Unallocated 25 27 (7)
Decline in Power revenue is primarily on account of lower Power trading revenue and “Nil”
naphtha based generation at Kondapalli I.
Operational data for the major operating units and trading arm for the quarter is provided below:
Projects
Capacity
(MW)
Units
Generated
(MUs)
Net Sales
(Rs Mn)
Kondapalli I 366 672 1,645
Kondapalli II 233* 78 442
Amarkantak 300 483 -
Aban 120 186 522
Vamshi Hydro 10 2 6
*Open Cycle is in operation since December’09. Total Capacity of the plant will be 366 MW
after operation of combine cycle.
• In respect of Kondapalli ‐I Power Station even though the generation has increased
compared to the corresponding quarter in the previous year, the sales realisations have not
increased comparably due to the fact that last year in same quarter plant was required to
generate on naphtha.
• Kondapalli II started generation in December’09 and generated 78 Mn units and booked
sales of around Rs. 442 mn, an average realization of Rs. 5.6 per unit.
• Net Sale of Aban includes sale on account of carbon credit to the tune of Rs. 127 mn.
• Name of Lanco Electric Utility has been changed to Lanco Power Trading Ltd. and it has
traded 718 mn units during the current quarter against 946 mn units in the corresponding
quarter of previous year.
Important Developments in Power Business:
• Lanco has bought 5.44% stake in Amarkantak Power project from International Financial
Corporation.
• Lanco Anpara, a group company of Lanco Infratech Ltd., also entered into an MoU with the
Government of Uttar Pradesh, to enhance the existing capacity of Lanco Anpara by 660
MW, from 1,200 MW to 1,860 MW.
• In line with the policy of Uttar Pradesh, Lanco Anpara, a group company entitled to sell 100
MW to third parties out of 1,200 (2 x 600) MW that is under construction and expected to
be on stream in 2011.Lanco Infratech Limited has entered into a Memorandum of
Understanding (MoU) with the Government of Uttar Pradesh to setup a 2 x 660 MW coal
fired power plant at Fatehpur.
• The Board of Lanco Infratech Ltd., has also resolved to transfer all of its holdings in various
power SPVs to a wholly owned power subsidiary of Lanco Infratech Ltd. Lanco Infratech
shall approach its shareholders for seeking necessary approvals in due course.
Status of Projects under different Verticals
As of 31st December 2009 capital expenditure incurred in power and Road projects and
debt utilized for the same are as follows:
Rs Million
Projects Capex Debt
Anpara 26,168 19,617
Udupi 44,421 31,687
Amarkantak 26,970 18,519
Lanco Energy ‐ teesta 8,269 4,733
Lanco Green ‐ Budhil 3,183 2,177
Lanco Hydro Energy ‐ Uttranchal 1,966 1,374
Kondapalli II ‐ expension 10,699 6,169
Vamshi Industrial 904 591
Kondapalli III ‐ expension 682 -
122,579 84,867
Total Power Projects
Road Projects
Devihalli 3,260 1,300
Hoskote 4,792 2,030
Total Road
Projects 8,052 3,330
Construction and EPC Business (Orders in Hand):
The Construction and EPC order book position as on December 31st 2009 is Rs.209,024 million.
The break‐up of the current order book is as follows:
Projects Rs Million
Power Projects
Amarkantak – I & II 1,043
Amarkantak – III & IV 55,240
Teesta VI – Sikkim 18,340
Anpara 14,163
Udupi (Nagarjuna) 8,141
Kondapalli Expansion 1,073
Kondapalli (Phase III) 21,060
Vidharbha 56,760
Others 4,577
Total Power Projects 180,398
Building Projects 18,448
Road Projects 4,454
Irrigation Projects 621
Transmission Line Projects 4,566
Chimneys 536
Total Order Book 209,024
• Award of Contracts
Lanco Infratech Ltd was awarded Contracts totalling value of Rs 5,675 Crores (Rupees Five
Thousand Six Hundred and Seventy Six Crores)
(a) One Contract for Offshore Supplies equivalent to Rs. 2,160.00 Crores
(b) The Second for Civil Works of Rs. 1,021.68 Crores,
(c) The Third for Onshore Supplies of Rs. 1,756.44 Crores
(d) The Fourth for Services of Rs. 283.80 Crores
(e) and the Fifth for Non‐EPC of Rs. 454.08 Crores by Lanco Mahanadi Power Pvt. Ltd, a
Subsidiary of the Company, in connection with the setting up of their Pulverized Coal Fired
Power Plant of 2 x 660 MW Capacity to be located in the State of Maharashtra.
• Lanco signs MOU for 1980MW coal fired power plants
Lanco Infratech Ltd has entered into a Memorandum of Understanding(MOU) with the
Government of Uttar Pradesh to set up a 2x660 MW coal fired power plant at Fatehpur.
Lanco Anpara, a group company of Lanco Infratech Ltd, has also entered into an MOU with
the Government of Uttar Pradesh to enhance its existing capacity by 660MW.From its
earlier capacity of 1200 mw, Lanco Apna will now have a total capacity of 1860mw which it
will be developing in two phases.
According to the MOU and the UP Power policy, Lanco Anpara is entitled to sell 1430 mw
to UP Power Corporation and 430mw to third parties.
The signing of the MOU with the UP Government will enhance our power generation
capacity and this will enhance the power generation capacity and this will further add to
the growth and the bottom line of the company.
• Award of Contracts
The Company was awarded Three Contracts totalling value of Rs. 2,106 Crores (Rupees Two
Thousand One Hundred and Six Crores) –
(1). One Contract for Supply of Rs. 1,640 Crores,
(2). The Second for Services of Rs. 216 Crores,
(3) and the Third for Civil and Construction Works of Rs. 250 Crores ‐‐ by Lanco Kondapalli
Power Pvt. Ltd., a Subsidiary of the Company, in connection with their Stage‐III Expansion
of the Power Project of 2 x 371 MW, at Kondapalli, Near Vijayawada, Andhra Pradesh
• Approves stock spilt
Recently the board of directors of the company approved the Sub‐division of One Fully paid
up Equity Share of Face Value of Rs. 10/‐ each into Ten (10) Equity Shares of Face Value of
Re. 1/‐ (Rupee One Only) each fully paid up.
Company Profile
Lanco Infratech Limited's principal activities are construction and development of
infrastructure facilities, property development, generation of power and trading in power. It
operates in three business segments, Construction, Power, Property Development and
Infrastructure development. The Construction segment involved in development of
infrastructure facilities like water supply, mass housing, industrial structure, institutional
buildings and expressways. The Power segment consists of generation of power. The Property
development segment involved in development of IT park, residential buildings, retail and
commercial complex.
Lanco’s operations have always been marked by creation of synergies, backward and forward
integrations and strategic innovations for competitive edge. Today, Lanco Infratech, through
twenty‐two subsidiaries has operations across a synergistic span of verticals.
The Major business segments of Lanco infra are as follows
Construction
Lanco Infratech Ltd has an excellent track record in Construction projects. Its project
expertise spans:
Power plants based on Gas, Coal, Bio‐mass, Hydro and Wind.
Irrigation and water supply projects, including dams, tunnels, lift irrigation, sewerage
schemes and marine works.
Civil construction including commercial and residential buildings, mass housing projects and
townships, industrial structures, information technology parks, Corporate offices, Hospitals
and more and transportation engineering projects including roads, highways, bridges and
flyovers.
Major business segments
Construction
Power
EPC
Infrastructure
Property development
Wind energy
Power
Lanco has proven expertise in power generation from conventional and non‐conventional
sources of energy including gas, coal, biomass, hydro and wind. Lanco has operational and
under execution projects amounting to over 8000MW.
EPC
The EPC group at Lanco ensures project delivery cycles, greater capital expenditure control,
sourcing the best service and technology providers and most importantly allows its clients to
focus on their core business.The core competence of Lanco is its experienced team for
managing contracts during all phases of a project, while meeting the highest international
standards.
Lanco provides engineering, procurement, construction, project management and
commissioning services on a Turnkey basis to the Power Sector leveraging on the experience
and expertise of its Group companies, its construction capability and competent manpower.
Lanco has ongoing projects across India and has in place an established network of
resources. The completed list of power projects includes Thermal, Hydro and Non
conventional Energy.
Infrastructure
Lanco Infratech Ltd has executed many challenging infrastructure projects across India
including Highways. Lanco is currently executing the Varanasi Non Metro Airport Project and
has emerged winner for the Vizhinjam Trans shipment Port Project in Kerala, India
Property development
Lanco's property development is all set to change the skyline of major metros with some of
the finest mixed property townships and realty projects incorporating state of the art
features and amenities. Lanco Hills, one such project, is a 100 acre township coming up in
Hyderabad. Lanco Ville in the IT corridor of Chennai is scheduled to commence shortly
Wind energy
Lanco has undertaken wind‐turbine manufacturing and project development activities in
India, Europe and the AmericasIt is launching its best‐in‐class 2 MW wind turbine in April
2009 with technology from a German engineering company of international repute.On the
project development front, Lanco has already acquired quality wind sites for development of
wind farms in excess of 6,000 MW and aims to achieve 15,000 MW over the next three
years.
Peer Group Comparison
Name of the
company
CMP
(As on 5
Feb, 2010)
Market
Cap.
(Rs. Mn.)
EPS
(Rs.)
P/E
(x)
P/BV
(x) Dividend(%)
Lanco Infratech
Ltd 42.00 101127.8 2.03 20.69
5.37 ‐
GVK Power &
Infra Ltd 42.65 67353.3 0.13 328
3.84 ‐
GMR
Infrastructure Ltd 52.40 192169.4 0.07 748.5
3.37 ‐
Reliance
Infrastructure Ltd 1034.55 233053.3 53.2 19.4
2.21 70
Key Concerns
• Rise in the prices of petroleum products and the increasing cost of power
• Highly competitive with diverse players
• Government policies.
• The increase in the excise duty on cement, will affect construction players.
• Delay in power projects
Financials
12 Months Ended Profit & Loss Account (Consolidated)
Particulars FY 08 A FY 09 A FY 10 E FY11 E
(Rs.Mn) 12m 12m 12m 12m
Net Sales 32,412.57 60,719.62 74721.87 85930.15
Other Income 952.93 562.44 1019.63 1121.59
Total Income 33,365.50 61,282.06 75741.50 87051.74