Lanco Infratech - you will neither lose your shirt nor your tie by buying this one

On January 05, 2011 Norges Bank on account Of Government Petroleum Fund bought 14,000,000 shares of Lanco Infratech at Rs 64 on the BSE. The CMP is Rs.55.20 / share. The 52 week range was Rs.74.70/40.80.

So what’s so good about Lanco Infratech that prompted Norges Bank to shell out INR 89.6 crores in these turbulent times to go for Lanco Infratech..

Without boring you about technicalities and bombarding you with numbers hard to digest, I am providing a brief over view of Lanco Infratech.

The company’s operations can be broadly be split into 3 broad categories:

• Core EPC business /Power business
• Real Estate
• BOT

Lanco’s internal orders (power projects) constituted a significant portion of the total Order book. The company’s external order book is diversified across the Road, Infrastructure and Transmission-line segments. If we have to believe the market grapevine, Lanco Infratech is likely to hive off power business into separate entity and will list the company in 2012.

Lanco Infratech Limited (LITL) EPC Division was recently awarded a Prestigious EPC Contract by a Moser Baer Group Company, for their 2 x 600 MW Coal Based Thermal Power Project through ICB.The Scope of Contract includes Complete Main Plant and BOP Package including Civil and Structural Works on Engineering, Procurement and Construction (EPC) basis. The Contract is worth Rs. 4,100 Crores..

Lanco intends to have 15,000MW capacity operational by 2015. The value of the power portfolio is estimated to be close to Rs100 bn. Even if we were to discount this valuation by 10 per cent then the same translates roughly into Rs.38 per share

Four year topline CARG was 61.46 per cent and 4 year bottom line CARG stood at 46.41 per cent. Topline which was hovering around Rs.541 crores in FY07 shot up to Rs.5937 crores in FY10. PAT which stood at Rs.73 crores in FY07 spiked to Rs.486 crores in FY10. During IHFY11, the company churned total income of Rs.4167 crores and PAT of Rs.318 crores. [ figures for corresponding period of previous fiscal Rs.4121 crores and Rs.285 crores ]

The company has an Equity base of Rs. 238 crores and its Reserves were to the tune of Rs.2922 crores. The Promotors holding is 67.95 per cent and Institutional Holding is around 24.2 per cent. Which means that 92.15 per cent is in strong hands. So why not clutch these strong hands by buying a pie in this company. Besides, the gearing ratio is less than one which means you are buying into a company whose operating risk profile is manageable as company has enough leeway to take on more loans when the situation warrants to do so.

If you are able to buy the stock around Rs.50-55, then you will not only make 50 to 75 per cent returns over a year or so but you can as well give yourself a pat on the back for emerging smarter than the Fat Boys!

Before I sign off here are some simple things you need to remember off and on in order to make money in the markets:

“ Markets are never wrong, opinions are.” Jesse Livermore

" Simplicity in trading demonstrates wisdom. Complexity is the sign of inexperience."

" Do not think you are smarter than the market, you are not."

Happy Investing!

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd