[T.S.R:18024] Hind Dorr: Show Them The Door; Only Stock To Have Traded Twice At Rs 25 and Rs 250 between 2008-2011

Weak execution and slow progress on new projects during the Sep11

quarter impacted HDOR's revenues, which declined by 39% y‐o‐y to

INR1.5bn. Weak operating performance along with higher interest cost

impacted PAT, which declined by 74% y‐o‐y to INR28mn. Working

capital expanded further on account of a slippage in milestone

achievement. Working capital expanded to 245 days during the

quarter, against 215 days during the Jun11 quarter. The order backlog

declined sequentially to INR13.8bn (1.8x TTM sales) compared to

INR14.9bn during the Jun11 quarter. Weak execution and rising

interest costs continue to remain a drag on growth and profitability.

We have reduced our earnings for FY12f‐FY14f by up to 43%, factoring

in weak execution and higher interest costs. We reduce our Sep12 TP

by 29% to INR30. We maintain the Hold rating on the stock.

PAT down 74%, impacted by weak execution and interest costs

HDOR reported a 39% y‐o‐y decline in revenue during the Sep11 quarter due to

weak execution and slow progress on new projects. EBITDA margins declined

by 130‐bp y‐o‐y to 7.8% during the quarter. Weak operating performance,

combined with higher interest costs, impacted PAT, which declined by 74%

y‐o‐y to INR28mn. Working capital expanded further on account of a slippage in

milestone achievement, resulting in an increase in other current assets. The

working capital cycle expanded to 245 days in the Sep11 quarter (215 days

during the Jun11 quarter). Order backlog declined to INR13.8bn (1.8x TTM

sales) in the quarter, compared to INR14.9bn during the Jun11 quarter.

Reduce EPS forecast by up to 43%

Lower than anticipated execution during 1HFY12 continues to remain a drag on

growth and profitability. This, combined with an increasing working capital

cycle and rising interest costs, continues to put an additional burden on PAT.

We reduce our EPS forecasts by up to 43% over FY12‐FY14, factoring in weak

execution and higher interest costs. Our revised forecasts imply a flat PAT

CAGR over FY12f‐FY14f, against 9% earlier.

Cut TP by 29% to INR30; maintain Hold

We continue to value the company on SOTP basis, valuing the standalone

business at 6.5x Sep13f EPS (INR29) and the subsidiaries/investments at 1.0x

book value (INR1/share) to arrive at a Sep12 TP of INR30. We maintain the Hold

rating on the stock. Higher than anticipated order flows and an easing working

capital cycle are the risk factors.

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