Stable execution, wholesome development outlook: Environment segment registered powerful income development of 51% YoY toRs 3bn, power segment grew 12% YoY toRs 12bn and chemical segment grew 24% YoY to Rs 1.2bn resulting in 19% YoY income development to Rs 15.7bn. Order intake grew 57% YoY to Rs 15bn in Q4FY21. Current orderbook at Rs 52.2bn (1.1x TTM sales) implies enhanced visibility. Due to the second wave of covid, close to-term outlook is uncertain even so, investment outlook is wholesome in medium to extended term.
Overseas subsidiaries’ functionality pressure continues: Order intake is steadily recovering from the overseas marketplace even so, functionality had been under par throughout Q4FY21.
Demand from core sectors and brief cycle orders will help development: Demand from core sectors like cement, steel and refinery has been wholesome in Q4FY21. The business is also focusing on brief cycle low-ticket sized orders and services which will allow it tackle any close to-term lull in demand effectively. Drive towards improvement in collections and margins may possibly continue supporting the cashflow.
Maintain HOLD regardless of higher valuation: The business is at present trading at a wealthy valuation of 47x FY22E and 38x FY23E earnings. We think powerful cashflow from operations, due to reduction in working capital, has offered additional fillip to re-rating. Strategic development initiatives in new development segments will open up new extended-term possibilities. Given varied development, margin and return trajectory of the 3 segments, we have shifted our valuation method to SoTP. Due to powerful development prospects, higher returns and margins below chemical compounds which is at decrease utilisation at present we assign 60x FY23E core a number of, atmosphere at 45x and power at 30x a number of.
We retain HOLD rating on the stock with a revised SoTP-based target of Rs 1,506 implying 40x FY23E earnings.