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Spark Capital: Lanco Infratech - 4QFY13 Results Review




Spark Capital Advisors(India) Private Limited


06 Jun 2013





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Lanco Infratech - Lacklustre quarter; maintain our cautious stance due to continuing headwinds Lanco reported yet another disappointing quarter with net loss of Rs. 316mn. Adjusting for one-off income related to cost compensation from certain projects at EPC segment and due to fee related to arrears from Bluewaters Power the adjusted net loss for the quarter stands at ~Rs. 3.9bn vs. net loss of Rs. 4.45bn last quarter. Anpara project continues to make losses at ~Rs. 1.87bn (loss of ~Rs. 1.40bn last quarter). Multiple issues exist like a) low PLF (~32% in 4Q) due to low coal availability from CIL b) coal-handling infrastructural bottlenecks hindering efficient off take of coal from the rakes provided by CIL c) high interest cost (~14%) on the debt of ~Rs. 37bn in the entity, and d) un-collected dues from UP at ~Rs. 5.10bn. Issues at other power plants persist – a) Amarkantak II is facing coal supply shortages and is also awaiting decision from Supreme Court on tariff finalization, b) Amarkantak I still unable to collect ~Rs. 4.50bn of dues from UP (received ~Rs.2bn of dues from UP in 4Q), c) Kondapalli II is witnessing ever lower PLF (~4% in the quarter) due to gas supply shortage from Reliance KG D6 and d) receivables from Karnataka swelling to >Rs. 18.00bn at Udupi. Griffin Coal reported improved numbers due to higher realizations for coal sales (realization was increased by ~USD 10/ tonne in 4Q) and one-off payment of revenues for prior periods (of ~USD 44mn). Due to the above mentioned reasons we are negative on the operational power plants even though ~80% of these capacities have minimal fuel price risk as they have cost pass through mechanisms (Amarkantak I, Udupi, Kondapalli I and Anpara have cost pass throughs). Deferment in execution of Amarkantak III (1,320 MW), Babandh (1,320 MW) and Vidharbha (1,320 MW) for want of surety/ clarity on fuel linkage, clearances for transmission lines and PPAs effectively means near stopping of works on these projects (completion of these projects stand postponed to FY15 and later). This will have a large effect on the EPC segment’s performance for the next two years (these three projects form ~50% of the existing order book of ~283bn); also the EPC segment would witness losses on the back of high interest costs on the >Rs. 100bn debt in its balance sheet. We are also concerned about the consolidated level debt reaching unwieldy levels (~Rs. 357bn even without considering the acquisition debt of US$ 550mn for acquiring Griffin coal) which has put the Company under severe cash crunch. Company is trying to sell few road assets and the power assets to tide over the cash crunch, but such measures might be delayed and inadequate. We continue to value the company on an SoTP basis yielding a target price of Rs. 8.9/ share (Rs. 10/ share earlier). Maintain Reduce rating with a TP of Rs. 8.9/ share

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