Gammon India

Gammon India

Gammon India

Gammon India

Gammon India

Gammon India

Delhi Metro flyover crashes...Gammon India shares slide

Shares of Gammon India tumbled 7.5% during the week to Rs149 after a part of an under construction Delhi Metro line collapsed on July 12 which was being constructed by the company. Six people were killed and 15 others injured when an under-construction bridge of the Delhi Metro collapsed. The accident took place at around 5 am last Sunday when a pillar of the bridge caved in near Lady Sriram College in South Delhi's Lajpat Nagar. The Delhi Metro chief E. Sreedharan inspected the site the next day even as clearing operations in the area were underway. Sreedharan, who resigned from the post owning moral responsibility for the mishap, visited the accident site to take stock of the situation. Delhi chief minister Sheila Dikshit rejected his resignation, as the state government sees his continuation necessary for the successful completion of projects related to Delhi Metro ahead of the 2010 Commonwealth Games. The DMRC has set up a four-member committee to examine reasons for the accident and it would submit its report in 10 days. This was the second accident involving the company. In the first incident, Gammon was held responsible for the collapse of a bridge in Hyderabad which claimed two lives in September 2007. Eight pre-fabricated segments of the flyover collapsed after scaffolding caved in on Sept. 9, 2007.

Gammon India

We recommend a buy in Gammon India from a short-term trading perspective. It is evident from the charts that the stock’s decline from January peak of Rs 96 was arrested at Rs 50 in early March, which was just above the December 2008 low of Rs 47. However, the stock reversed its trend and has been on medium-term uptrend since March. In early April the stock conclusively penetrated its 50-day moving average and is trading well above this average. After a minor pullback, the stock resumed its medium-term trend by gaining 6 per cent with above average volume on May 6. This recent surge in stock price has reinforced the bullish momentum. The daily relative strength index (RSI) has re-entered the bullish zone from the bearish zone and the weekly RSI is begun to rise in the neutral region. The daily moving average convergence and divergence indicator is featuring in the positive territory. We are bullish on the stock from a short-term horizon. We anticipate the stock’s up move to prolong until it hits our price target of Rs 92. Traders with short-term trading perspective can buy the stock while maintaining a stop-loss at Rs 78.

Gammon India

Gammon India

Gammon India

Gammon India

Gammon India

Gammon India

Marico, Gammon

Marico, Gammon

Apollo Hospitals, Axis Bank, Bharati Shipyard, Gammon India, Firstsource Solutions, IDEA Cellular

Apollo Hospitals, Axis Bank, Bharati Shipyard, Gammon India, Firstsource Solutions, IDEA Cellular

Gammon India plunges as its flyover crumbles

Shares of Gammon India plunged 9% to Rs 420.65 on the Bombay Stock Exchange, post the flyover collapse in Hyderabad on Sunday evening.

The market perceives that the collapse of the flyover will result in huge losses for the company and affect the company’s ability to secure new contracts. Around 8.37 lakh shares exchanged hands on BSE on Monday.

However, analysts believe all is not lost. If it were to recover from the flyover muddle, Gammon still has the quality to do well on the bourses. The order book of the company provides strong growth visibility.

An order book at “3.6 times FY3/07” revenues provides strong visibility for growth over the next three years. With the initial mobilisation phase for a large proportion of the order book over, margins should remain stable, a construction analyst said.

Gammon India

Gammon India

Prabhudas Lilladher - Gammon India

Prabhudas Lilladher report on Gammon India:

Result Snapshot

Gammon India reported Q4FY07 and FY07 results in line with expectations. Revenues (adjusting JV revenues) in Q4FY07 rose 54% y-oy to Rs 6268 million. However, due to higher tax on account withdrawal of 80IA benefits, net profit in the quarter was lower by 24% at Rs 220 million. For the full year (adjusting for JV revenues) was higher by 57% and net profit was higher by 20% at Rs 18.6 billion and Rs 984 million respectively. Given its strong order book of Rs 76 billion and a expected strong order inflows, we are projecting revenues of Rs 27.3 and Rs 35.7 billion for FY08E and FY09E. We have valued Gammon’s 82.5% stake in GIPL at Rs 114 per share. However, we believe that that there is an upside to this valuation and would look and revisiting this at a later date. Adjusted for GIPL and other subsidiaries value of Rs 124 per share, Gammon is currently trading at 21x and 16x FY08E and FY09E earnings respectively. While valuations do appear a bit on the higher side, given the strong order book and the likely value unlocking on account of GIPL we maintain our ‘OUTPERFORMER’ rating on Gammon.

Result Highlights

Revenues in Q4FY07 grew by 54% y-o-y and 65% sequentially to Rs 6.2 billion. Driven by strong EBIDTA margins of 9.6% for the quarter, EBIDTA increased 71% to Rs 603 million. EBIDTA margins were higher on account more projects reaching the profit-booking threshold. Gammon has provided for tax at 60% of PBT as adjustments for tax rates for the previous three quarters reflected in Q4FY07. As a result, net profit for the Q4FY07 fell by 27% y-o-y to Rs 220 million. For the full year gross revenue was at Rs 21 billion and net revenue (adjusted for JV income) grew by 57% to Rs 18.6 billion. Gammon now accounts for income from JV’s based on profit sharing, which implies that only the profits from the JV are included in the overall revenues. For the full year the revenues from the Oman JV was at Rs 2.4 billion and the profit from the JVs is at Rs 131 million. As EBIDTA margins for the year were lower at 9.9% as against 13% last year, EBIDTA for the full year grew at 20% to Rs 1.85 billion. The slower growth in EBIDTA is on account of the large base of last year, which also includes some claims that the company had received. Depreciation for the year grew at 19% to Rs 352 million on account of a total capex of Rs 1.7 billion during the year largely on new equipment. Gammon has provided for tax at 31% for the full year. In light of the clarifications on the applicability of 80IA benefits, Gammon has provided for income tax for previous years. This amounts to Rs 500.9 million and also includes the interest on the amount. As a result, for the full year, recurring net profit increased 20% to Rs 984 million. Adjusting for the short provision in tax, profit for the year was at Rs 445 million, which is lower by 47%.

Order Book

Gammon has an unexecuted order book position of Rs 76 billion of which a third each is distributed across the power and transportation segments and the balance within irrigation, water, industrial structures etc. While order inflows in the current year have been relatively slower, we expect this momentum to pick. Moreover, Gammon would also add to the order inflows once GIPL received the LoI for the Mumbai Offshore Port and the HEPs. Currently, approximately 20% of the total outstanding order book comprises projects awarded to the parent by GIPL. Going forward the management has indicated that this share should increase as more projects are awarded through the Public Private Partnership route. Moreover, order intake from the mega real estate developments should also likely provide momentum in overall order intake.

Gammon Infrastructure Projects

In March 2007 the Securities Appellate Tribunal (SAT) passed an interim order directing SEBI to process GIPL’s draft 'Red Herring Prospectus' expeditiously. SEBI has thereafter directed the company to refile the DRHP. The management has indicated that they are in the process of working out the fund raising format for GIPL and will make available the details shortly. Currently GIPL has 13 BOT projects totalling a project value of Rs 55 billion. Of this GIPL has yet to receive the formal LoIs for 3 of these projects, namely the Mumbai Offshore and the Hydel Power projects. GIPL currently has a networth of Rs 2.6 billion.

Real Estate

During the year, GIL incorporated Gammon Realty Ltd, as a subsidiary of the parent company, with the objective to carry on the business, developers, builders and construction of residential, commercial and industrial premises etc. However, the company has yet to formally announce its real estate development plans.

Valuations

Given its strong order book of Rs 76 billion and a strong order inflow pipeline, we are projecting revenues of Rs 27.3 and Rs 35.7 billion for FY08E and FY09E. We have valued Gammon’s 82.5% stake in GIPL at Rs 114 per share. However, we believe that there is an upside to this valuation and would look and revisiting this valuation at a later date. Adjusted for GIPL and other subsidiary valve of Rs 124 per share, Gammon is currently trading at 21x and 16x FY08E and FY09E earnings respectively. While valuations do appear a bit on the higher side, we believe that given the strong order book and the likely value unlocking on account of GIPL we maintain our ‘OUTPERFORMER’ rating on Gammon.

Tilaknagar Industries, Gammon India

Tilaknagar Industries, Gammon India

Emkay Morning Notes, Gammon India

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From Research Desk - SEBI order impact on the Gammon group

We spoke to Mr. Parvez Umrigar, Managing Director of Gammon Infrastructure Projects Ltd (GIPL) to seek clarification on the recent order issued by the Securities and Exchange Board of India (SEBI). The following are the key take-aways:

Gammon India and Mr. Abhijit Rajan are not allowed to sell shares of GIPL for a period of three years from the date of allotment in the public issue of GIPL. There are however, no restrictions on GIPL to raise money from the market. The IPO of GIPL, as stated by Mr. Umrigar, is on track as per schedule. GIPL is a debt free company with a networth of around Rs2.5bn. It can leverage if it wants but plans to strengthen its networth further before raising any more debt. Plans for GIPL are unaffected by the SEBI
order.

Gammon India Ltd (GIL) and Mr. Abhijit Rajan cannot access the capital market directly or indirectly for one year from date of the order. Mr. Umrigar mentioned that GIL is comfortably placed with a networth of over Rs10bn and negligible net debt/equity ratio. The management of GIL has an internal target of not raising money through equity issuance till March 2009, which means that the company will not be constrained financially, by the SEBI verdict.

Mr. Umrigar also said that even if GIL de cides on raising money (which it has no plans for currently), it could do so by borrowing from banks or through the private equity route.

The working of GIL is unaffected and the management maintains its target of 35% turnover growth conservatively and stretch target of 50% during FY06-08.

GIL plans to become a US$1bn company during FY09. The company plans on contesting the SEBI order.

We had recommended a BUY on GIL in our construction sector report dated October 18, 2006 (India Under ‘Construction’) at Rs385 with a target price of Rs454. Our target price was achieved and the stock hit a high of Rs487 on December 05, 2006. The last 13 trading sessions have seen a sharp fall and with the declaration of the SEBI order, the GIL stock has predictably taken a beating this morning - down 7.7%, CMP Rs379 (December 22,
2006: 12.05pm).

We believe that this fall presents an opportunity for long term investors to enter a leader in the construction space with a long track record, order book/FY06 sales of 6.7x and high
expected growth rate in topline. The stock trades at a P/E of 24.3x FY07E and 16.5x FY08E EPS, adjusted for value of BOT investments. We recommend a BUY and our revised target price of Rs476 represents an upside of 25.6% in one year.

Gammon India Ltd.

CMP: Rs436.70

BUY

Gammon India Ltd. (GIL) is one of the oldest and largest construction companies in India with uninterrupted profitability for the last 32 years, displaying the
ability of the management to combat cyclicality. The order book at Rs78bn presently, translates into 6.6x its FY06 annualized turnover, being one of the highest ratios among peers. The order intake at 1.6x during FY05 annualized turnover and 3.6x FY06 annualized turnover has shown a rising trend and will help generate high growth rate in future.

GIL, through its 82.5% subsidiary, Gammon Infrastructure Projects Ltd (GIPL), is one of the largest owners of infrastructure assets in the country. GIPL holds nine BOTs, four operational and the rest in development phase, including four
roads, two bridges, two power projects and a port project. The revenue stream is diversified too, with a mix of toll, annuity and grants. We value these BOTs at
Rs57.7 per share of GIL, which forms 15.5% of the CMP.

While we have valued the BOTs at the book value of equity infused by GIL, we foresee significant unlocking of value with the listing of GIPL, which has filed its draft red herring prospectus with the Securities and Exchange Board of India. The IPO would also help resolve the varied and long term funding needs of GIPL for BOTs.

Driven by an order book increase by Rs40.6bn between CY04 and Q1 FY07 and an order intake of 1.4x FY07E turnover, we expect GIL to witness a CAGR of 54% in turnover between FY06 and FY08 and a 33.2% CAGR in net profit during
the same period. The transportation segment will drive revenues accounting for an expected 52.4% of total revenues in FY07 and 50.7% in FY08.

P-Sec - Gammon India

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Motilal Oswal - Gammon India

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Thanks Ramesh