Lanco Infratech Ltd posted profit after tax of Rs 113.3 crore for the quarter ending March 2010, a growth of 26% year-on-year and more or less in line with street expectations.
The company has changed its depreciation policy and all new power projects capitalized during FY10 and onwards will follow written down value (WDV) method.
Since depreciation charged in the initial years is higher under the WDV method, this has pulled down net profit. Lanco’s depreciation costs increased sharply to Rs244.03 crore from Rs32.98 crore last year. The silver lining is that it has saved on tax.
Graphic: Yogesh Kumar/Mint
Consolidated revenue from the power business increased by a huge 87% in the quarter over the same period last year and accounted for 44.7% of total revenue, up sharply from 27.2% last year.
The increase in revenue from the power business can be attributed to operating revenue from Amarkantak and Kondapalli projects and power trading.
Lanco started the Amarkantak power project in June 2009 but wasn’t recognizing revenue from this until recently.
The company declared commissioning of Amarkantak in January and recognized revenue of the earlier quarters as well, thereby boosting revenue from the power business in the March quarter.
But revenue from the EPC (or project engineering) and construction business fell by 13.2% and contributed 54.7% of total revenue, lower than the contribution of 72% in the March quarter last year.
EPC revenue was hit because the company booked some BTG (boiler turbine generator) and external civil construction revenue, which were not so lucrative.
Lanco’s property development business also performed poorly. According to an analyst, this was mainly because the company wrote down some of the prior period revenue which had been booked at higher price points because it had to offer discounts.
Operating profit margin expanded by an impressive 1358 basis points to 27.49% from 13.91% last year, helped by strong performance in the power business.
But earnings before interest and tax (Ebit) margins of the EPC and construction business dropped 186 basis points to 11.06% from 12.93% last year on account of decline in revenue of the business.
The company is sitting on an order book worth Rs 25,713.7 crore, which is more than three times its consolidated revenue for FY10.
This offers good revenue visibility.
Lanco’s stock, currently trading at around Rs63 per share has outperformed the BSE Midcap index in the last three months.
While risks on account of execution, EPC margins and real estate sales remain, strong prospects in the power business augur well for the stock.
The company intends to add 2,600MW capacity in FY11 taking its total power generation capacity to 3950MW.
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