Jyoti Structures Ltd (JSL) – Stock Idea

(Target: INR 171, Upside: 25%)

Company Background

Jyoti Structures Ltd (JSL) is engaged in business related to power transmission with three main lines of operation in the areas of transmission lines, sub-stations and distribution networks and undertakes turnkey projects on a global scale, offering a complete range of services in design, engineering, tower testing, manufacturing, construction and project management.

Investment Rationale

ü       Strong order book position gives good revenue visibility

ü       Higher share of domestic power transmission orders

ü       Low volatility in margins due to price escalation clause

ü       International operations to do well in 2011 & 2012 – will aid JSL's bottomline

Outlook & Valuation

The company intends to pursue the growth opportunities presented by the power sector by growing its transmission network including strengthening of existing network, by participating in government's ambitious plan to meet the demand for power. Power Grid's plan to set up HCPTC, at an estimated cost of INR 580 bn will provide a huge opportunity for JSL. We expect domestic opportunities and faster execution to help JSL's topline to grow 5% in FY11 & 20% in FY12. With order inflow to improve in H2FY11, revenue visibility will improve for FY13. At CMP, the stock trades at 9x our FY12 earnings estimates. We value JSL at 11x its

FY12 EPS for a price target of INR 171. However, once the PGCIL orders start coming in, JSL will see a strong re-rating going forward. We recommend Buy for the stock.

----