The company posted a revenue growth of 63% for Q2FY09 on y-o-y basis, inline with our expectations.

Operating margins for Q2FY09 stood at 21.4%, slightly better than our estimates. The company is adequately hedged in terms of raw material price hikes due to diverse project mix as well as raw material supply from clients in certain projects.

Net profits registered a growth of 44% for Q2FY09. However it was impacted by higher interest outgo as compared to Q2FY08. In Q2FY09 also, Era Infra has not made any mark to market provisioning for translation losses on its outstanding FCCB loans.

Due to increase in the working capital as well as capex requirements, borrowings witnessed a steep increase resulting in higher interest outgo.

We modify our estimates to factor in higher borrowings. With an order book of close to Rs57 billion, we expect the company to grow its revenues at a CAGR of 32% and with diverse mix of projects. Net profit is expected to grow at a CAGR of 15% between FY08-FY10.

Valuation

At current price of Rs75, stock is trading at 10.7x and 8.1x FY09 and FY10 estimated earnings.

We modify our estimates for higher borrowings and due to the de rating witnessed by the entire sector and also reduce our target valuations for the company inline with the current macro economic scenario.

We now value the stock at 7.5x FY10 estimated earnings and revise our price target to Rs74 as against Rs127 earlier.

We believe that in the near term stock can be impacted by higher borrowings. Along with this, we are also not very comfortable with the accounting treatment for exchange rate fluctuations on the outstanding FCCB’s where company has not made any provisioning for a loss of Rs 343mn since last two quarters.

At current market price, the stock seems to be fairly valued. We thus recommend SELL on the counter.