Favorable sales mix to aid profitability
In-line earnings on execution surprise led by lower margin turnkey project
* Revenues came in higher than estimated, led by superior performance in the Turnkey segment (74%/50% YoY increase in 4QFY20/FY20). With this, the revenue share of the low-margin Turnkey segment stood at 51% in FY20, up from 45% in FY19. An adverse revenue mix led to decline in EBITDA margins in 4QFY20/FY20.
* The order book declined 15% YoY to INR95.5b, with OB/Rev at 3x, the lowest in the last four years. With superior execution and lower order inflows, a depleting order book remains a concern, although it is not alarming at this stage. We tweak our FY21/FY22E EPS by -2%/+1% and maintain our Buy rating, with TP of INR93 (prior: INR100).
Earnings in-line; adverse revenue mix impacts margins
* 4QFY20 snapshot: Revenues came in at INR8.5b, up 39% YoY (11% above estimate). EBITDA stood at INR1.1b, up 19% YoY (in-line). The EBITDA margin declined 220bp YoY to 13% on an adverse revenue mix. PBT stood at INR1.7b, up 17% YoY (in-line). The effective tax rate stood at 24.7% in 4QFY20 (v/s 35.3% in 4QFY19). Adj. PAT was up 37% YoY to INR1.3b (in-line).
* FY20 snapshot: Revenue stood at INR32b, up 31% YoY. EBITDA stood at INR4.4b, up 21% YoY. The EBITDA margin stood at 13.8% (down 120bp) on an adverse revenue mix. PBT came in at INR6.7b, up 19% YoY. Adj. PAT stood at INR4.3b, up 16% YoY. CFO was at INR3.7b (v/s INR5.4b in FY20).
* Segmental snapshot – Consultancy: 4QFY20 revenues stood at INR4b, up 14% YoY. The EBIT margin stood at 34.2%, up 550bp YoY. FY20: Revenues stood at INR15.6b, up 16% YoY. The EBIT margin stood at 31.9%, up 300bp YoY. The order book was at INR44.5b, up 3% YoY. Turnkey: 4QFY20 revenues stood at INR4.5b, up 74% YoY. The EBIT margin stood at 2.9%, down 340bp YoY. FY20: Revenues were at INR16.4b, up 50% YoY. The EBIT margin stood at 4%, down 170bp YoY. The order book stood at INR51b, down 26% YoY.
Order inflow and order book position
* Order inflows for FY20 were lower at INR16.2b (v/s INR59b in FY19). All the orders in FY20 came from the Consultancy segment (domestic – INR8.2b and overseas – INR8b).
* Order backlog in the Consultancy segment rose 3% YoY to INR44.6b, while it declined in the Turnkey segment by 26% YoY to INR51b.
Highlights from management commentary
* Margin guidance for Turnkey was reduced to 3–4% based on orders in hand. Margins for Consultancy are expected to be between ~25% and 28% on a steady-state.
* With the on-going slackness due to COVID-19, management expects order inflows of INR1.6b in FY21.
* The company generates INR0.5–1b in revenues from the Pipeline business annually and does not envisage any major revenue jump in FY21.
* Of the two tenders for the Numaligarh refinery out for bidding, the company has not participated in either owing to aggressive bidding.
Valuation and view
We slightly tweak our FY21/FY22E EPS by -2%/+1%. We forecast a revenue/EBITDA/PAT CAGR of -3.5%/4.4%/10.3% over FY20–22E. We expect the revenue mix to reverse going forward, thus aiding profitability. Maintain Buy, with TP of INR93 (prior: INR100).
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