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Sharekhan puts BUY on Genus Power Infra

Sharekhan puts BUY on Genus Power Infra
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First Published: Wed, Aug 19 2009. 09 11 AM IST
Updated: Wed, Aug 19 2009. 09 11 AM IST
Genus Power Infrastructures Ltd (GPIL) has declared its audited numbers for FY2009, accounting for certain (explained below) one-time losses that had resulted in a cumulative write-off of Rs35.4 crore during the fiscal.
In FY2009, the company had written off Rs36.32 crore towards various deductions made by its customers. These losses, as the management has indicated, pertained to project delays and goods returned over the previous three to four years. The write-off was of one-time in nature.
Currently, GPIL does not make any provisions for any unforeseen situations (eg project delays) in project execution and this could affect the company’s profitability.
In order to avoid similar write-offs in future the company aims to start making provisions for unforeseen situations from FY2010 onwards.
In fact, it has already made a provision of about Rs1.7 crore in Q1FY2010. Hence, this would negate the risk of a cumulative write-off at the end of a year.
Last fiscal, the company had also booked a loss of Rs3.1 crore from the sale of its investment in Individualiza SA, Brazil. GPIL held a 50% stake in the Brazilian joint venture that was involved in trading in Brazil.
Outlook
We have revised downwards our estimates for the period FY2010-11 by 3.3-3.5% to factor in the contraction in the margins to be caused by the provisions likely to be made by the company during this period.
Our FY2010 and FY2011 earnings per share (EPS) estimates now stand at Rs45.6 and Rs59.4 respectively. We have also revised our price target for the stock to Rs288 per share.
We maintain our BUY recommendation on the stock. At the current market price the stock is trading at 3.5x and 2.7x FY2010 and FY2011 EPS estimates.
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First Published: Wed, Aug 19 2009. 09 11 AM IST
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