Wednesday, June 30, 2010

Maytas Infra - Avoid

There are signs of revival in operations of Maytas Infrastructure and new but experienced promoters will only boost the fundementals going ahead

For Maytas Infra, FY10 has been the first full year of operations after Satyam’s fraud broke out in January 2009, which also affected the company. The Hyderabad-based company reported around 32 per cent drop in consolidated net sales in FY10 on a y-o-y basis to Rs 1,138 crore, as it still struggled to achieve financial closure and execute projects, thanks to the mess created by its tainted promoter Ramalingam Raju.

However, it delivered better operational and bottomline performance thanks to control over costs. Operating loss shrunk nearly 84 per cent y-o-y to Rs 33 crore, as share of manufacturing expenses to sales came down significantly from 101.5 per cent to 87.9 per cent, and the same for employees was cut from 7.8 per cent to 5 per cent. Similarly, net loss after extra-ordinary items, was lower at Rs 279 crore as compared to Rs 406 crore, as there were no tax expenses and interest cost declined by 11.4 per cent y-o-y to Rs 155 crore, though its share as percentage to sales jumped 300 basis points to 14 per cent.

The company’s financial health is likely to improve going ahead. It has received nod for Corporate-Debt Restructuring (CDR) plan from Empower Group of Committee, wherein it will transfer investment worth Rs 310 crore to a trust called Maytas Investment Trust and transfer BOT bank liability to trust, which will issue pass through certificates in exchange. The company also has had one-time settlement with 4 banks worth Rs 121.63 crore. Maytas is confident of recovering its inter corporate deposit of Rs 324 crore provided to Mahindra Satyam (erstwhile Satyam). All these measures will help further reduce its high debt to equity ratio of 1.3 times as on FY10.

In a recent move, $5 billion Saudi BinLaden’s wholly owned subsidiary, Mauritius-based, SBG Projects Investments came in as a co-promoter and bought 20 per cent from Infrastructure Leasing & Financial Services Limited (IL&FS) in the company and investing Rs 300-odd crore. SBG has further offered to buy another 20 per cent at Rs 195.7, about 7.5 per cent less than the current market price of Rs 212. Infrastructure financing behemoth, IL&FS, was given the management control of the company from September 2009 and since then it has taken measures to infuse liquidity and improve the operations in the company.

Now, with support from strong contacts and credibility of IL&FS, and experience of 80-year old largest construction and development contractor in Saudi Arabia, SBG, in the EPC business (engineering, procurement and construction), Maytas would be in a position to garner more orders in future, especially from the overseas market. Both companies would also be in a position to work jointly in India and abroad.

Maytas received orders worth about Rs 1,000 crore from recently listed IL&FS Transport Networks in the last few months, which is a positive sign for its future growth. Its current order book of around Rs 8,000 crore, which is spread to various business segments such as transportation, power, buildings, railways and irrigation projects, gives a revenue visibility of 7 years. With improving financial health, the company’s execution is expected to pick up. In short, things are only going to get better for the crisis hit company atleast in terms of operational performance though there are still little hopes of financial performance to turnaround immediately.

However, analysts are still cautious about the stock and believe that there are better stocks available in the construction and infrastructure space, which offer better growth opportunities and visibility.

Thus, investors with high risk appetite with lot of patience should only look at the stock, which has already appreciated 200 per cent in the last one year.


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