Ø GAI reported excellent result for Q4 FY 2008. Net Sales increased by 12.6% to Rs. 49.83 crore. OPM% zoomed to 26.4% (19.7%) mainly due to halving of sub contracting charges to Rs. 94 lakh (Rs. 2.4 crore) Improvement could have been significant but for sharp spurt in raw material cost to 54.1% (49.7%) of sales due to rising steel prices. Further aided by 75.7% reduction in interest of Rs. 27 lakh (Rs. 1.13 crore), PAT (before extra ordinary items) grew @ 36.1% to Rs. 8.91 crore. Extra ordinary income (net of tax) of Rs. 12.93 crore on disinvestment of 49% stake in JV with Johnson Screens Inc, USA , led to 233.6% jump in PAT of Rs. 26.49 crore.
Ø For FY 2008, net sales were up by 14.7% to Rs. 167.01 crore. OPM% improved to 22.7% (19.6%). Consequently, PAT (before extra ordinary income) grew @ 33.5% to Rs. 24.18 crore. Extra ordinary income of Rs. 12.93 crore lifted PAT up by 104.9% to Rs. 37.12 crore. On consolidated basis, Net Sales stood at Rs. 253.4 crore, PAT before extra ordinary income at Rs. 33.59 crore and PAT after extra ordinary income was Rs. 46.52 crore.
Ø GAI designs and produces wide range of road construction equipments. Company offers from rock to roll after services - that is right from crushing till compacting and there are batch mixing plants, asphalt mixers, curbers and pavers. So basically, it is a complete solution chain, which company offers in road construction business.
Ø By adding to product portfolio, company is expanding addressable market. It has entered into technical know-how and licensing agreement with European company to manufacture soil compactors & tandem vibratory compactors. This range of products is expected to start contributing from Q1 FY 2009. This addition coupled with recently added range of crusher and mining equipment will strengthen company's product range. Rollers and crusher range of products have much larger addressable market size and have versatile end uses, de-risking GAI in future.
Ø Government has already embarked on massive road construction projects such as National Highway , Golden Quadrilateral projects, etc. Besides, major policy decision to throw open construction of roads, bridges, airports, and ports to private sector and allowing 100% foreign investment in real estate projects have provided a boost to construction industry. 11th five year plan entailing investment of ~ Rs. 209,400 crore in road infrastructure projects points to strong order inflow. Road construction equipments account for ~ 21-23% of total project cost, indicating huge growth potential for road equipment sector. GAI, which gets > 60% of domestic sales from organised players like Punj Lloyd, HCC, Gamon, etc. will be the major beneficiary.
Ø Continued thrust on export (accounted for 41% of turnover in FY 2007) market has paid rich dividend. GAI has achieved significant market share in Saudi Arabia , African countries, Afganistan , Australia , Bangladesh and Sri Lanka . There is big demand in form of replacement market in EU and US for road construction equipment products. Increased exposure to such markets would improve profitability as margins are better in such projects.
Ø To cater to growing demand, company has embarked on capacity expansion drive (almost doubling capacity) @ capex of Rs. 65 crore in 3 phases, spread over 2-3 years, to be financed thru allotment of 550,000 warrants worth Rs. 9.9 crore to promoters and divestment of 49% stake in JV @ Rs. 25..8 crore.
Valuation
Ø At CMP, the share is trading at 8.75 times FY 2008 actual consolidated EPS of Rs. 30.65 and 7 times FY 2009 expected consolidated EPS of Rs. 38.31. With leadership position in road construction equipment sector with widening of portfolio, entry into mining equipments and initiatives undertaken to enhance exports, company is poised for great future. Hence, we recommend to “Buy” the share at CMP
No comments:
Post a Comment