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Healthy margin expansion; upgrade to ADD

Our view

GE T&D India Ltd (GETD) reported a mixed set of numbers with revenues missing our estimates at Rs7.8bn (down 15% YoY) however EBITDA saw a healthy 54% YoY growth at Rs458mn. Adj PAT came in at Rs59mn which is the third consecutive quarter in the green. Order inflows in 3QFY23 at Rs7.8bn grew by 53% YoY. As on 3QFY23 order book stands at ~Rs34.8bn (1.3x TTM revenue), providing revenue visibility for ~18 months. Going forward management expects strong traction with healthy ordering pipeline in renewable and TBCB segments and is confident of capitalizing on opportunities presented by the 2023 Union Budget.

We believe challenges in the form of rising commodity prices have largely eased and margin recovery would be contingent upon cost rationalization measures. However, we expect 1) strong order pipeline, 2) pickup in order inflows and 3) execution ramp up, to benefit GETD in the long run and expect it to report revenue CAGR of 5% from FY22?FY25E. The stock is currently trading at 63.3x/34.8x/19.7x FY23E/24E/25E EPS. We roll forward our target multiple to FY25E and upgrade it to ADD (from REDUCE) with a revised target price of Rs131.

Result Highlights

* Sales came in at ~Rs7.8bn (down 15% YoY) (YSLe: Rs8.4bn) on account of poor dispatches

* Gross margins came in at 30.4%, ~1200bps/520bps YoY/QoQ expansion which is in-line with management’s guidance

* EBITDA grew by 57% YoY at Rs458mn (YSLe: Rs298mn) on account of higher gross margins and operating leverage benefits. Margins saw a healthy expansion of ~270bps/510bps YoY/QoQ

* Adj. PBT came in at Rs135mn vs Rs4mn in 3QFY22 ? Adj PAT came in at Rs59mn vs a loss of Rs1mn in 3QFY22

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