Key Data

CMP Rs 534

Sector Infrastructure

Face Value Rs.2

BSE Code 523838

52 Week H/L Rs 774/ 315

Investment Rationale

SIL currently has a strong order-book position of Rs9500 crore (5.6x FY07 and 3.9x TTM sales) to be executed over the next 2.5 years. Strong order book of the company provides revenue visibility over the next 2 years.

SIL has diversified business model with presence across major Infrastructure segments namely Buildings & Housing (25.6%), Industrial (17.9%), Bridges and Power (13.9% each), Urban Infra (10.9%), Marine (8.9%), Roads & Railways (6%) and Piling & ground engineering (3%). International orders also increased from 7% in FY06 to 27% in January 2008. In addition it has also commissioned first oil rig for Oil India for two year period at a rentals of $16000 per day. Strong execution abilities and enhanced diversification plans helps SIL, an all-round infrastructure player, to post robust performance going forward.

SIL reported 57.7 percent y-o-y increase in top-line to Rs704 crore in December quarter. Order book increased 15 percent since FY07 to Rs9150 crore. The company also achieved FY07 sales in first nine months of FY08. Operating margin was flat at 10 percent in Q3 FY08, however net margin declined 70 bps due to higher interest expenses. SIL also had robust performance in 9M FY08 with 62 percent growth in top-line and 45 and 25 bps improvements in operating and net profit margin respectively.

Therefore considering the robust order book, strong project execution skills and diversified business model, we expect SIL to post robust performance going forward. We also expect the company to bid for more ultra mega power plants give the massive shortfall in net addition to the over all installed capacity.

SIL bagged Rs302 crore orders for construction of 6 flyovers on Seeb Corniche road in Muscat in Sultanate of Oman. The company has established its construction business in Qatar and UAE and has also received its first order from Oman thereby marking its significant presence in Middle East. On 16 February 2008, it received Rs406 crore orders for civil construction of 10.7 km long viaduct on the Versova – Andheri - Ghatkopar elevated corridor of the Mumbai MRTS project.

The company has entered into a two years contract with Oil India Ltd for on-shore oil drilling exploration at $16,000 per day. It is also negotiating for 2 more rigs at $22,000-$24,000 per day. Government has invited bids for 57 exploration blocks in seventh round of bidding under the New Exploration Licensing Policy. The bidding is expected to attract investment to the tune of $3.5-$8 bn for exploration and discovery.

The company has reported 58 percent and 56 percent growth in net sales and EBDITA to Rs704 crore and Rs70.5 crore respectively in Q3 FY08. The EBDITA margin was flat at 10 percent; however net profit margin declined 70 bps to 3.1 percent due to higher interest and depreciation expenses.

At current market price of Rs534 the stock is quoting at a PER 33.6x. On EV/Sales and EV/EBITDA it is available at 1.36x and 13.01x of TTM December 07 earning respectively.