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Please refer to important disclosures at the end of this report 1

Quarterly highlights - Standalone

Operating profit 47 46 51 1.8 (7.6)

Source: Company, Angel Research

For 1QFY2013, Madhucon Projects Ltd (MPL) reported a mixed set of

numbers with revenue coming in below our expectations. However, a higher

EBITDAM resulted in a better-than-expected earnings performance. MPLs

order book stands tall at ~`7,000cr (3.2x FY2013E revenue), providing good

visibility for the next couple of years.

On the top-line front, MPL posted a disappointing

performance with a y-o-y increase of 2.1% to `336cr, way below our

expectations of `425cr. As per the management, a ramp up in execution of

Barasat Krishnagar and Ranchi Rargon Jamshedpur projects will drive the

companys revenue growth going ahead. The EBITDAM came in at 14.0%, flat

on a y-o-y basis but posted a jump of 220bp on a q-o-q basis against our

expectation of 11.9%. Interest cost stood at `24cr a jump of 15.1% on a y-o-y

basis but a decline of 11.3% on a sequential basis. On the earnings front, thecompany posted a decline of 11.9% yoy at `7cr, higher than our expectations

of `5cr. This is despite a higher tax rate (39.5%) on the back of higher

EBITDAM and lower-than-expected interest cost.

MPL has an equity

requirement of ~`570cr for its build-operate-transfer (BOT) road projects. We

believe the key triggers to watch out for MPL would be a pick-up in execution in

the development business and raising money for the same. Hence, we believe

until then the stock would be a sector performer and real value would be created

only on unlocking at the subsidiary level.

Key financials (Standalone)

% chg 30.8 (0.7) 22.4 13.4

% chg (10.2) (11.2) (5.9) 0.8

EBITDA margin (%) 9.5 11.3 10.7 10.7

P/E (x) 6.3 7.1 7.5 7.5

RoAE (%) 6.9 5.8 5.2 5.0

RoACE (%) 10.1 9.5 8.6 8.3P/BV (x) 0.4 0.4 0.4 0.4

EV/Sales (x) 0.5 0.7 0.7 0.7

EV/EBITDA (x) 5.5 6.6 6.5 6.3


CMP `35

Target Price `56

Investment Period 12 Months

Stock Info

Sector

Bloomberg Code

Shareholding Pattern (%)

Promoters 57.8

MF / Banks / Indian Fls 21.7

FII / NRIs / OCBs 9.6

Indian Public / Others 11.0

Abs. (%) 3m 1yr 3yr

Sensex 9.3 5.3 19.9

MPL (23.9) (51.6) (58.0)

1

17,7285,380

MAPR.BO

MDHPJ@IN

258

0.9

94/33

11,340

Infrastructure

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

Face Value (`)

BSE SensexNifty

Reuters Code

022-39357800 Ext: 6842

[email protected]

Performance Highlights

1QFY2013 Result Update | Infrastructure

August 14, 2012

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Madhucon Projects | 1QFY2013 Result Update

August 14, 2012 2

Exhibit 1:Quarterly performance (Standalone)

Total expenditure 289 283 381 2.2 (24.2) 1598 1520 5.2

OPM (%) 14.0 14.1 11.8 (10)bp 220bp 11.3 10.9 40bp

Interest 24 21 27 15.1 (11.3) 109 62 76.6

Depreciation 13 12 14 6.3 (8.4) 51 47 7.8

Non operating income 1 1 14 134.0 (90.8) 17 5 225.7

Nonrecurring items 0 0 - - - 0 0 -

Tax 5 6 9 (23.1) (50.4) 25 30 (18.1)

PAT (%) 2.1 2.4 3.5 (30)bp (140)bp 2.0 3.0 (100)bp


Exhibit 2:1QFY2013 Actual vs. Estimates

Net Sales 425 336 (20.8)

EBITDA 51 47 (6.7)

Interest 29 24 (17.9)

PAT 5 7 44.9


Revenue growth loses momentum

On the top-line front, MPL posted a disappointing performance with a y-o-y

increase of 2.1% to `336cr, way below our expectations of `425cr.

On the BOT front, four operational projects witnessed toll

collection of ~`46lakhs/day. Further, the management is expecting toll collections

to improve for the Madurai Tuticorin project in the next few quarters.

MPL has achieved ~48% completion for the Chhapra

Hazipur project. Further, it has achieved financial closure (FC) for BarasatKrishnagar and Ranchi Rargon Jamshedpur projects and started construction work.

However, for the two recently won road projects Vijayawada Machilipatnam and

Rajauli Bakhtiyarpur the company is yet to achieve FC.

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August 14, 2012 3

Exhibit 3:Muted revenue growth

352

593

329

416

625

432

336

25.6 22.0

(19.2)

18.3

77.5

(27.1)

2.1

(40.0)

(20.0)

-

20.0

40.0

60.0

80.0

100.0

-

100

200

300

400

500

600

700

3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13

Sales (` cr, LHS) Growth (yoy %, RHS)


Higher EBITDAM leads to better-than-expected earnings show

The EBITDAM came in at 14.0%, flat on a y-o-y basis but posted a jump of

220bp on a q-o-q basis against our expectations of it coming in at 11.9%. The

interest cost stood at `24cr a jump of 15.1% yoy but a decline of 11.3% on a

sequential basis. On the earnings front, the company posted a decline of

11.9% on a y-o-y basis at `7cr, higher than our expectations of `5cr despite a

higher tax rate (39.5%) on the back of higher EBITDAM and lower-than-

expected interest cost.

Exhibit 4:EBIDTAM trend

45

63

46

54

53

51

47

12.7

10.6

14.113.0

8.4

11.8

14.0

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0


EBITDA (` cr, LHS) EBITDAM (%, RHS)


Exhibit 5:PATM trend

12

19

8

6

8

15

7

3.3 3.3

2.4

1.51.2

3.5

2.1

-

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

-

5

10

15

20

25


PAT (` cr, LHS) PATM (%, RHS)


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August 14, 2012 4

Order book analysis

MPLs order book, as of 1QFY2013, stood at ~`7,000cr (4.3x FY2012 revenue),

which is dominated by the roads (60.9%) and irrigation (21.3%) segments. The

balance was contributed by the power, real estate, mining and other segments.

Exhibit 6:Segment wise order book break-up (` cr)

4,260

280

1,490

545425

Roads Power Irrigation Real Es tate Mining & others


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August 14, 2012 5

Outlook and valuation

MPL has an equity requirement of ~`570cr for its BOT road projects. We believe

the key triggers to watch out for MPL are pick-up in execution in the development

business and raising money for the same. Hence, we believe until then the stock

would be a sector performer and real value would be created only on unlocking at

the subsidiary level.

Exhibit 7:Derivation of SOTP-based target price for MPL (FY2014E)

Agra Jaipur NPV CoE -14%, Traffic and Toll increase 4% and 5% respectively 127.3 17.2 30.7

TN (DK) Exp NPV CoE -14%, Traffic and Toll increase 3% and 3% respectively 38.1 5.1 9.2

Trichy Thanjavur NPV CoE -14%, Traffic and Toll increase 4% and 5% respectively (22.0) (3.0) (5.3)

Madhurai Tuticorin NPV CoE -14%, Traffic and Toll increase 3% and 4% respectively 64.7 8.7 15.6

Simhapuri Energy Investment 0.5x of investments 132.3 8.9 15.9

Coal Venture Investment 0.5x of investments 22.5 3.0 5.4


Investment arguments

As of 1QFY2013,

MPL has an order book of ~`7,000cr, spread across the power, highway and

irrigation segments. In recent times, the companys order book witnessed traction

in the road segment via winning of BOT projects and captive power projects.

We believe MPL

has a decent portfolio of road BOT assets (four operational + five under

construction/development), power projects and coal mining projects, which have

latent potential. However, we believe faster execution and value unlocking at the

subsidiary level would act as a trigger for the companys performance. We expect

MPL to access the capital markets in FY2014, when it would have reached more

milestones and enhanced its asset visibility. Therefore, in the short to medium term,

the stock would continue to be a sector performer.

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August 14, 2012 6

Key concerns

MPL has plans to raise money from

markets to fund its asset-expansion spree. In case MPL is unsuccessful in doing so,it may face delays, which will negatively impact the IRRs of the companys projects.

MPL has high proportion of captive road BOT projects,

which are fixed-price contracts. In such contracts, some price escalations can be

factored in; however, the company may face risk of margin erosion if commodity

prices increase beyond estimates.

Any slowdown in awarding activity by NHAI would hit order

inflow for road-focused players such as MPL.

Company background

Madhucon Projects Ltd (MPL) is a Hyderabad-based construction company

promoted by N. Seethaiah and N. Krishnaiah. The company operates in the road

(61% of order book), irrigation (21%), power (4%), mining (6%) and real estate

(8%) segments. MPL has a portfolio of nine road BOT projects (four operational

and five under construction/development), three power projects (300MWx2 and a

recent international foray), a coal mine in Indonesia, and land bank in Hyderabad.

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August 14, 2012 7

Exhibit 8:Recommendation summary

ABL 264 273 Neutral 1,514 2,014 2,293 23.1 18.0 22.6 26.7 21.7 14.7 11.7 9.9 3.9CCCL 16 - Neutral 2,048 2,262 2,522 11.0 (0.5) 1.5 2.7 - - 10.4 5.8 2.2

HCC 17 - Neutral 3,988 4,239 4,522 6.5 (3.7) (2.3) (1.0) - - - - 3.5

IRB Infra 121 166 Buy 3,131 3,964 4,582 21.0 14.9 15.5 16.9 6.5 8.1 7.9 7.2 -

ITNL 164 232 Buy 5,606 6,840 7,767 17.7 25.6 24.4 28.3 5.3 6.4 6.7 5.8 2.9

IVRCL 46 61 Buy 4,971 5,510 6,722 16.3 0.9 2.5 4.6 125.5 50.7 18.0 10.0 5.6

JP Assoc. 77 91 Buy 12,853 15,259 17,502 16.7 4.8 4.2 5.0 1.9 16.0 18.2 15.4 -

L&T 1,452 1,553 Accu. 53,171 60,474 69,091 14.0 64.3 72.1 76.3 9.0 22.6 20.1 19.0 2.5

NCC 41 45 Accu. 5,250 5,804 6,513 11.4 1.4 3.0 3.5 58.0 29.2 13.5 11.7 3.5

Patel Engg 81 - Neutral 3,573 3,609 3,836 3.6 14.9 14.0 14.5 (1.1) 5.4 5.8 5.6 2.7

Punj Lloyd 52 - Neutral 10,557 11,892 13,116 11.5 2.8 1.7 3.1 5.7 18.9 30.7 16.9 2.3

Sadbhav 133 182 Buy 2,676 2,506 3,147 8.5 9.3 7.5 10.4 5.7 14.3 17.7 12.8 2.9

Simplex In. 200 265 Buy 6,019 6,732 7,837 14.1 16.8 23.5 29.4 32.2 11.9 8.5 6.8 2.5


Exhibit 9:SOTP break-up

ABL 87 32 - - 186 68 - - - - 273

CCCL 16 100 - - - - - - - - 16HCC (6) (26) 12 53 16 73 - - - - 22

IRB Infra 98 59 - - 64 39 4 3 - - 166

ITNL 19 8 - - 180 78 - - 33 14 232

IVRCL 41 67 - - - - 20 33 - - 61

JP Assoc. 28 31 30 33 - - - - 33 36 91

L&T 1,221 79 - - - - 332 21 - - 1,553

NCC 25 54 2 4 4 8 - - 15 34 45

Patel Engg 44 46 17 18 16 16 - - 19 20 95

Punj Lloyd 69 100 - - - - - - - - 69

Sadbhav 83 46 - - 99 54 - - - - 182

Simplex In. 265 100 - - - - - - - - 265


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August 14, 2012 8

Profit & loss statement (Standalone)

Other operating income

% chg 38.9 35.4 30.8 (0.7) 22.4 13.4

Total Expenditure 901 1,253 1,644 1,598 1,971 2,235

Net Raw Materials 706 1,022 1,397 1,417 1,533 1,739

Other Mfg costs 118 135 120 - 267 303

Personnel 46 50 58 57 90 103

Other 31 47 69 124 79 90

% chg 15.5 9.2 27.2 18.4 15.5 13.4

(% of Net Sales) 12.1 9.8 9.5 11.3 10.7 10.7

Depreciation& Amortisation 43 46 48 51 64 80

% chg 9.9 10.4 39.9 22.8 12.3 9.1

(% of Net Sales) 7.9 6.4 6.9 8.5 7.8 7.5

Interest & other Charges 27 25 63 109 139 156

Other Inc. (incl pft from Ass/JV) 19.1 5.6 8.9 17.3 19.1 21.0

(% of PBT) 26.1 8.1 12.5 28.4 36.7 40.0

% chg 5.2 (5.0) 1.9 (13.7) (14.8) 0.7

Extraordinary Expense/(Inc.) - - - - - -

Tax 26 24 23 25 18 18

(% of PBT) 35.6 34.1 33.0 40.3 34.0 33.9

Add: Share of earnings of asso. - - - - - -

Less: Minority interest (MI) - - - - - -

Prior period items - - - - - -

% chg (0.7) (2.4) (10.2) (11.2) (5.9) 0.8

(% of Net Sales) 4.6 3.3 2.3 2.0 1.6 1.4

% chg (0.7) (2.4) (10.2) (11.2) (5.9) 0.8

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August 14, 2012 9

Balance sheet (Standalone)

Equity Share Capital 7 7 7 7 7 7Preference Capital - - - - - -

Reserves& Surplus 529 571 601 634 664 694

Minority Interest

Total Loans 320 513 751 1,206 1,487 1,628

Deferred Tax Liability 12 10 4 4 4 4

Gross Block 462 491 505 535 595 664

Less: Acc. Depreciation 173 218 264 315 379 459

Capital Work-in-Progress - - - - - -

Inventories 52 75 178 417 340 275

Sundry Debtors 88 124 379 400 513 600

Cash 85 55 64 124 214 197

Loans & Advances 491 498 764 872 1,121 1,335

Other - - - - - -

Misc. Exp. not written off - - - - - -

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August 14, 2012 10

Cash flow statement (Standalone)

Profit before tax (excluding MI) 73 69 71 61 52 52

Depreciation 43 46 48 51 64 80Change in Working Capital 71 11 168 336 52 (10)

Less: Other income 19 6 9 17 19 21

Direct taxes paid 26 26 23 25 18 18

(Inc.)/ Dec. in Fixed Assets (83) (29) (7) (30) (60) (69)

(Inc.)/ Dec. in Investments (73) (266) (117) (113) (174) (209)

Other income 19 6 9 17 19 21

Issue of Equity - - - - - -

Inc./(Dec.) in loans 124 193 238 456 281 140

Dividend Paid (Incl. Tax) 3 3 2 4 4 4

Others (1) (2) (30) - - -

Inc./(Dec.) in Cash (17) (29) 9 60 90 (17)

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August 14, 2012 11

Key Ratios

P/E (on FDEPS) 5.5 5.7 6.3 7.1 7.5 7.5P/CEPS 2.9 2.8 2.9 3.0 2.6 2.3

P/BV 0.5 0.4 0.4 0.4 0.4 0.4

Dividend yield (%) 2.3 1.1 0.7 1.4 1.4 1.4

EV/Sales 0.5 0.5 0.5 0.7 0.7 0.7

EV/EBITDA 4.0 5.3 5.5 6.6 6.5 6.3

EV / Total Assets 0.6 0.6 0.7 0.7 0.7 0.7

EPS (Basic) 6.4 6.2 6.4 4.9 4.6 4.7

EPS (fully diluted) 6.3 6.2 5.6 4.9 4.6 4.7

Cash EPS 12.2 12.5 12.0 11.8 13.3 15.5

DPS 0.8 0.4 0.2 0.5 0.5 0.5

Book Value 72.4 78.1 82.2 86.6 90.7 94.8

EBIT margin 7.9 6.4 6.9 8.5 7.8 7.5

Tax retention ratio 0.6 0.7 0.7 0.6 0.7 0.7

Asset turnover (x) 1.5 1.5 1.5 1.2 1.2 1.2

ROIC (Post-tax) 7.5 6.4 7.1 6.0 6.2 6.1

Cost of Debt (Post Tax) 6.6 4.0 6.6 6.7 6.8 6.6

Leverage (x) 0.3 0.6 1.0 1.4 1.8 2.0

Operating ROE 7.8 7.9 7.6 5.2 5.0 5.0

ROACE (Pre-tax) 10.3 9.0 10.1 9.5 8.6 8.3

Angel ROIC (Pre-tax) 11.7 9.7 10.6 10.1 9.3 9.2

ROAE 9.1 8.2 6.9 5.8 5.2 5.0

Asset Turnover (Gross Block) 2.4 2.9 3.6 3.5 3.9 4.0

Inventory / Sales (days) 29 17 25 60 63 45

Receivables (days) 32 28 51 79 76 81

Loans and Advances (days) 159 130 127 166 165 179

Payables (days) 180 133 153 202 186 198

W.cap cycle (ex-cash) (days) 31 34 44 95 110 100

Net debt to equity 0.4 0.8 1.1 1.7 1.9 2.0

Net debt to EBITDA 1.9 3.4 4.0 5.3 5.4 5.4

Interest Coverage 3.0 3.5 2.0 1.4 1.2 1.2

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August 14 2012 12

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www. angelbroking.com

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risks of such an investment.

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Disclosure of Interest Statement Madhucon Projects

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

MPL-1QFY2013RU-140812

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