Buy ISGEC Heavy Engineering Ltd For Target Rs.880 By ICICI Securities
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Manufacturing led to good quarter, maintain BUY
ISGEC Heavy Engineering (ISGEC) reported a good set of numbers for Q1FY24 with standalone revenue/EBITDA/PAT up 14%/35%/112% YoY to INR 11.3bn / 766mn / 637mn respectively. Performance was aided by growth in the manufacturing business of the company. Current orderbook stands at INR 84bn, +9% YoY. Enquiry pipeline remains robust in both domestic and international product-segments. Key sectors witnessing traction are: power, sugar, steel, cement, and ethanol. NWC situation is likely to improve with execution of FGD orders. Execution of biofuel plant in Cavite, Philippines, is on track and likely to start commercial operations by Nov’23. Management indicated strong
Execution improves across segments
Both manufacturing and EPC revenue grew ~14% YoY to INR 3.4bn / 8.4bn led by strong existing order backlog and pickup in execution. EBIT margin in manufacturing was up 770bps YoY to 11.7% on account of favourable mix and lower raw material prices. EPC EBIT margin declined 120bps YoY to 3.9%. This led to 110bps YoY expansion in EBITDA margin at 6.8%. We expect gradual improvement in profitability to 6.9% / 7.1% for FY24E / FY25E.
Positive outlook for subsidiaries
Consolidated revenue/EBITDA in Q1FY24 grew ~11% / 44% / 181% YoY to INR 13.9bn / 1.1bn / 507mn, respectively. This was led mainly by improved performance of the standalone business and Saraswati Sugar Mills. Management indicated a strong enquiry pipeline for all the subsidiaries. Cavite Biofuels’ ethanol operations are likely to see commercial operations start by Nov’23 and deliver INR 5bn revenue with EBITDA margin of 30% on a full-year basis.
Maintain BUY with TP of INR 880
With an improving order inflow and better margins led by better job mix, we expect execution to pick up along with gradual improvement in profitability. Management guidance of double-digit revenue growth has also been factored into our estimates. We have revised our earnings estimates by ~8% for FY24E/FY25E.
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