Stock Idea
[June 21, 2010] | | |
| Summary of Contents STOCK IDEA Genus Power Infrastructures
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs298
Current market price: Rs207
Reinitiating coverage with a Buy call Key points -
Business back on track: Genus Power Infrastructures (Genus), a leading domestic electronic energy meter (EEM) manufacturing company with over 35% market share, suffered a setback when one of its meter manufacturing plants was badly damaged by the severe fire that broke out at IndianOil Corporation (IndianOil)?s depot in Jaipur on October 29, 2009. Since the plant contributed about 40% of Genus? total revenues, the incident had created a lot of uncertainty related to the company?s financial performance over the following few quarters. However, the company surprised positively by limiting the extent of the damage and stabilising the operations much before expectations. -
Order booking to pick up: Genus has a strong order book of Rs820 crore (at the end of March 31, 2010), which stands at 1.24x its FY2010 revenues. The same is executable over the next 12-18 months. The company has bagged orders worth Rs464 crore in this fiscal which is lower than the orders worth Rs1,180 crore secured in FY2009. This fall in order booking is mainly due to the October 2009 fire after which the company slowed down on new order booking and focused on the execution of the pending orders. However, going ahead, the company expects its order booking to pick up, as it has bid for tenders worth Rs1,000 crore. -
Favourable demand outlook: The demand for EEMs is expected to remain buoyant due to the APDRP initiatives like the 100% metering programme and the replacement of mechanical meters by EEMs. In view of the robust demand outlook for EEMs, Genus has ramped up its EEM capacity to over 2.5 million units pa and plans to further increase the capacity to 3.5-4 million units. The demand in the project division is also likely to remain robust on the back of the huge investments envisaged in the T&D segment. -
Attractive valuations, re-initiate coverage with Buy rating: Given its strong order pipeline, the huge opportunity in its chosen niche space and its proven execution capabilities, we believe that Genus can sustain a 20-25% growth rate in its revenues over the next few years over which period its OPM is also likely to remain stable. Hence, its earnings are estimated to grow at a CAGR of 24.3% over FY2010-12. Currently, the stock is trading at a P/E of 4.2x its FY2012 diluted EPS and at a P/B of 0.75 the FY2012 BV. The valuations look attractive and much lower than the average multiple enjoyed by Genus over the past five years. We re-initiate coverage on the stock with a Buy rating and a price target of Rs298 (6x on FY2012 EPS). | |
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