* *Gammon India Limited (Gammon) declared its Q1FY09 results. *Key
highlights of the results and the takeaways from the concall:*
*Unimpressive revenue growth, guidance lowered:* Revenues for Q1FY09 stood
at INR 5.85 bn, as against INR 5.40 bn in Q1FY08 showing an increase of 8%
Y-o-Y. Lower revenue growth in Q109 was on account of suspension of two
orders, which includes one order from Konkan Railways and the other one in
Assam. These orders were worth INR 5 bn. The railways order was suspended
due to some problems between the Konkan Railway and the Northern Railway
authorities, while the Assam order was suspended by Gammon due to problems
related to security issues. The company has lowered its top line guidance to
INR 30 bn, as against the earlier guidance of INR 32 bn for FY09.
· *EBITDA margins shrunk by 230 bps:** *EBITDA for Q109 stood at INR
492 mn, as against INR 577 mn in Q1FY08 a decline of 14.8%. EBITDA margins
for the quarter at was lower by 230 bps compared Q1FY08.The primary reason
for the decline in EBITDA margins was the steep rise in commodity
prices andsuspension of the two above mentioned orders.
· *INR 393 mn of other income includes profit by way of partial sale
of its stake in Sadbhav Engineering:* PAT for the quarter was at INR 524 mn,
as against INR 286 mn in Q108. This was due to INR 393 mn of other income,
which included INR 386.4 mn of profit booked on sale of shares in Sadbhav
Engineering. Gammon sold its 3.6% stake in Sadbhav out of its 8.8% stake.
*Other highlights:*
· *Strong Order Book: *The present order book of Gammon stands at
INR 90 bn, 3.8x its FY08 revenues and is executable over a period of three
years. 85% of orders are covered by cost escalation clauses while the
remaining 15% is fixed price. It is also the preferred bidder in orders
worth INR 15 bn.
· *Merger with ATSL will enable gain a strong foothold in the power
transmission business: *Gammon has approved the merger of Associated
Transrail Structures Ltd (ATSL), with the company. It currently has a 22%
stake in ATSL. Swap Ratio for Merger is 2:1; One Equity Share of ATSL will
be allotted Two Equity Shares of Gammon. It believes that the merger will
enable it to have a strong presence in the fast growing transmission towers
business. Key points highlighted on ATSL:
o ATSL currently has an order book of INR 17 bn executable over a
period of 18-24 months.
o ATSL revenue guidance for FY09 is given at INR 10 bn with an EBITDA
margin of 13.5-14%. The Blended Revenue Guidance (merged entity) is INR 40
bn at a margin of 9.5%.
o ATSL had earlier in the year acquired a 100% stake in a power
transmission company in Italy for INR 250 mn. The order book of the acquired
company is INR 5 bn and has orders in Middles East and Africa. The
acquisition was done in order to diversify geographically and gain a
foothold in the Middle East and the African market which offers a lot of
opportunities in the segment.
· *Recent acquisitions of Franco Tosi and Sadelmi and the merger
with ATSL will lead Gammon to get a strong presence in the entire energy
segment: *Gammon believes that the recent acquisition of Franco Tosi and
Sadelmi and its merger with ATSL will enable it to have a strong presence in
the entire energy segment that offers a lot of opportunities.
It has recently acquired 50% stake in Sadelmi and 75.1% stake in Franco
Tosi. Franco Tosi is engaged in the manufacture of steam turbines for
thermal and hydro-electric plants with presence in the European, Latin
America and the Middle East market. It has an order book of Euro 200 mn (~
INR 12.8 bn), executable over a period of 24 months. Sadelmi is engaged in
the EPC of balance of plant, mainly for the power sector and has a total
order book of Euro 400 mn (~INR 25.6 bn), executable over a period of 30
months.
is currently under review.
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