Infrastructure to drive growth

Updated: Nov 13 2005, 05:30am hrs
Power is critical for infrastructure and thus happens to be a significant driver of economic growth. It has been observed that the growth rate for power in developing countries is always higher than that of the GDP. The overall GDP of India moved up by 8.1% for the quarter of 2006, up from 7.6% during the corresponding quarter last year, whereas growth in power or electricity has moved up by 7.8% during August 2005.

Jyoti Structures Ltd (JSL), with the annual sales turnover of Rs 439.61crore serves to companies in power (thermal, hydel, and nuclear) generation, transmission and distribution and caters to clients such as Reliance Energy, Tata Electricals and Co, Indian Power Corporation, L&T and NTPC.

The Jyoti group of companies is a conglomeration of industrial units involved in manufacturing and marketing a wide range of electrical and hydraulic engineering equipment used in the vital sectors of the economy.

Reliance Energy holds 14.5% stake through the private placement of 2 million shares at Rs 111. REL's investment is considered as being largely strategic in nature, Reliance Energy has aggressive growth plans in the power sector, which would result in REL investing in transmission network. Since REL does not have its own facility in this segment JSL will be the preferred partner for sourcing its requirement.

JSL's future revenue growth is well reflected in its order book position at Rs 850 crore, of which the company is expected to conclude about Rs 350 crore in the financial year 2006. The company has significantly increased its export earnings by 73.44% at Rs 91.82 crore, which accounts for almost 20% of the total sales as compared to 17% last year 2004.

Power scenario

Historically, India has been a power-starved country with the widening demand-supply deficit in the power sector, the production has hovered around 1 lakh mega-watts for the last few decades. In addition to this, the country has to improve its transmission and distribution facilities. The ministry of power has projected that to achieve power on demand by 2012, India needs to add additional 1 lakh mega-watts at an estimated cost of Rs 8,00,000 crore.

The power sector development demands a thrust on transmission and distribution system. The government has envisaged a blue print for this sector involving formation of national grid and inter-regional link, through major inter-regional transmission highways to be developed by 2012. As per the perspective transmission plan, cumulative capacity of inter-regional links will be enhanced from existing 7800 MW to 30000 MW to match the capacity addition of 100,000 MW by 2012.

Financials

For the year ended March 2005 JSL has shown a 44.86% rise in net sales at Rs 439.61 crore as the net profit of Rs 11.53 crore grew by 110.84% compared with the corresponding period last year.

For the Q2FY06 the sales have grown by 93% at Rs 158.48 crore and the net profit have gone up by 254.52% at Rs 5.29 crore. Despite the decline in the EBIDTA margin at 9.8% company announced a 203% rise in EPS at Rs 3.8.

Outlook

The mission "power for all by 2012" envisages an investment of about Rs 71,000 crore in the central sector transmission system. Out of the total, Rs 50,000 crore is to be mobilised by Powergrid, a central transmission utility, through its own resources and the balance investment of Rs 21,000 crore through the private sector. Sustained investment in the power transmission sector through power grid corporation of India limited coupled with the investment by state electricity boards will augur well for the company The process of transmission that has began with the advent of the Electricity Act, 2003 enables private participation in transmission line. Since these projects are highly working capital-intensive the company runs the risk arising due to longer execution period, delay in completion and cost overrun.

Valuations

On the back of higher earning growth shown by the company the share price have appreciated by almost 154.88% in last one year and currently trading at Rs 268.90. On the basis of trailing four-quarter EPS it is trading at P/E (x) 24.45 and P/BV(x) 3.9 to it's annualised book value. The company generates 22.3% ROCE and 14.7% RONW, which have gone up significantly from 19% and 10% respectively last year 2004.