Lanco Infratech (Lanco), straddled across the Power value chain, is expanding into newer high-growth businesses like Real Estate. We believe Lanco, with its three-decade long presence in the Construction and Power sectors, has well timed its capacity expansion programme.
The company has chalked out aggressive plans to increase its power generation capacity from 515MW to 4,070MW over the next four years.
This ramp up in power generation will involve a range of fuel types including gas, hydro, wind and coal. We expect the power segment to grow over FY08-10E and resulting capacity expansion will also boost bottomline growth going ahead.
Internal orders constitute 91% of the company’s overall order book of Rs13,017 crore (Rs7,541cr) at the end of 1QFY2009, up 72.6% y-o-y.
Once the internal projects are completed, the projects would become a source of recurring revenues and profits.
We believe that this order book would be executable over the next 3-4 years, which provides high Revenue visibility for Lanco. Hence, we expect the C&EPC segment to clock topline of Rs5,970 crore in FY10E.
We estimate Lanco’s topline to grow at a CAGR of 95% over FY08-10E, while Margins are expected to stabilize at 16% levels by FY2010E.
Bottom-line is estimated to post a CAGR of 47% in the mentioned period. We have arrived at a SOTP Target Price of Rs413.
Lanco’s core C&EPC business has been valued at Rs175 (9 x FY2010E EPS), power business at Rs175 (on DCFE and/or P/BV basis), BOT business at Rs14 (on DCFE basis) and real estate arm atRs49 (on NAV basis).
We initiate coverage on the stock, with a BUY recommendation.