Buy Gayatri Projects; target of Rs 180: Sharekhan

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Sharekhan`s research report on Gayatri Projects“In Q1FY2015, the stand-alone revenues of Gayatri Projects Ltd (GPL) declined by 23.0% year on year (YoY) to Rs342 crore on account of execution delays caused by the Telangana related issues facing Andhra Pradesh. The weakness in the standalone performance could continue in Q2 also but the management is quite confident of better order inflow and execution rate from the third quarter of this fiscal. In terms of subsidiaries, Gayatri Infra Ventures (has seven road projects of which six are operational; GPL has a 70% stake and 30% is with private equity) does not require any more equity infusion and all the operational road projects are generating enough free cash after accounting for the interest charges and debt repayments. In power, Gayatri Energy Ventures Pvt Ltd (GEV; a holding company for two power projects of 1,320MW each) also reported a steady progress in construction and the first phase (660MW) of one of its projects (in joint venture with Singapore-based Semcorp Industries) is likely to get commissioned in Q3FY2015. NCC Power projects (GEV: 25%, Sembcorp: 45%, NCC: 30%) is on schedule with the equity requirement of GEV at Rs250 crore, assuming GEV increases its stake to 35%.” “The management is hopeful of an improvement in the overall business operations during H2FY2015. Firstly, the order inflow of its stand-alone operations should pick up while issues related to irrigation orders will get sorted out improving the overall stand-alone profitability. Secondly, the two phases of power projects will be commissioned during the period, leading to a re-rating of the valuation of its power assets. Thirdly, debt should gradually reduce with options like raising of equity capital, deferment of debt and monetisation of road asset. We have revised our estimates for FY2015 and FY2016 downwards after factoring in lower execution of orders on account of the issues mentioned above. We maintain Buy on the stock with a price target of Rs180,” says Sharekhan research report. 

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