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Healthy growth in MTO segment; P&E losses narrow
* MTO and CFS deliver healthy performance:
revenue increased 12% YoY to INR17.4b (our estimate: INR17b) in 2QFY19, led by 11% YoY growth in MTO segment. EBITDA increased 19% YoY (+22% QoQ) to INR1.3b, higher than our estimate of INR1.07b, led by lower-than-estimated loss from P&E segment. PAT declined 3% YoY to INR618m (our estimate: INR537m) due to a higher tax rate of 24% v/s 1% in 2QFY18.
* Project & Engineering (P&E) segment reduces losses:
(a) MTO volumes increased 22% YoY to 1,74,268 TEUs. Revenue rose 11% YoY to INR15.4b due to volume growth across key markets. EBIT margin expanded 0.29pp YoY (+0.4pp QoQ) to 4.4%. (b) CFS volumes increased 22% YoY to 88,604 TEUs. Revenue rose 20% YoY to INR1.2b. EBIT margin expanded ~2.5pp YoY (+ 4.89pp QoQ) to 32.9% due to higher volume/realizations and lower CWC loss. (c) P&E revenue increased 34% YoY to INR940m. The segment reported an EBIT loss of INR10m (our estimate: loss of INR200m), as against a loss of INR40m in 2QFY18. Loss reduction can be attributed to better Projects division utilization.
* Management commentary:
(1) MTO volumes grew 22% YoY; the segment continued gaining market share in key markets across the world, despite challenging trade and freight conditions. (2) CFS volumes increased 22% YoY, driven by Kolkata operations. Kheda ICD has been closed as it was not profitable. AGLL also increased its share in DPD volumes at JNPT.
* Valuation view:
MTO is likely to perform well over the medium term, led by healthy volume growth. Volume growth in CFS should be driven by the Kolkata operations. Losses at P&E are likely to narrow further due to an uptick in asset utilization. Valuations of 11.9x/10.6x FY19/20E earnings appear attractive, given AGLL’s strong fundamentals and earnings CAGR of 17% over FY18-20. We value AGLL at 13x FY20E P/E to arrive at a target price of INR140. Maintain Buy.
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