Jyoti Structure's (JYS) Q1FY13 numbers were below Edelweiss' estimates as JYS posted a subdued revenue growth due to sustained issues with clients and ROW. PAT declined by 33% YoY due to higher interest cost. Order intake improved 18% YoY to Rs9.3bn even as the order backlog was flattish at Rs46bn. JYS indicated bids worth Rs115bn, including bids to be opened and those on the anvil. It maintains a revenue growth guidance of 10%-15% with a margin range of 10%-11% for FY13E. Edelweiss maintain HOLD with a target price of Rs41.

Mute execution, higher interest costs dent earnings

JYS reported a passive revenue growth of 3% YoY to Rs6.5bn, primarily due to ROW and client centric issues. Margins came off by 120bps YoY to 9.8% on account of higher sub-contracting charges. JYS continues to face higher interest costs (up 26% YoY), hurting earnings which dipped 33% YoY to Rs174mn. JYS also grapples with high working capital with the debtor at 215days (same as FY12 level).

Order inflow improves, pipeline remains strong

JYS reported a stable order book of Rs46bn, up 3% YoY. It reported a big ticket size order from the West Bengal SEB worth Rs7bn which helped JYS report an order inflow growth of 18% YoY to Rs 9bn.While PGCIL currently accounts for 33% of JYS’ order book, SEBs make up 37% and private sector and others account for the balance 30%. Specifically, transmission line towers account for 55%, sub-station 18% and rural electrification for the rest of the order book. It focuses on select SEBs and PGCIL besides the private sector for incremental order intake. The current order pipeline is ~Rs110bn of which, it has submitted bids worth Rs65bn to PGCIL.

Outlook and valuations: Stable; maintain ‘HOLD’

JYS continues to battle with deteriorating working capital and high interest costs. It mentioned that though the competitive intensity has declined, the pricing remains a problem. Edelweiss trim our earnings estimates by 8% & 6% respectively for FY13E & FY14E respectively building in lower margins. The stock trades at 3.4x and 2.9x FY13E and FY14E earnings, respectively. Edelweiss maintains their ‘HOLD/ Sector Performer’ reco/rating on the stock with a target price of Rs41.