The recovery in CG Power and Industrial Solutions Ltd. will be gradual despite healthy progress on international business restructuring and improving domestic capex cycle, according to Morgan Stanley. The main reason: modest growth in its domestic order book, the broking firm said.
Standalone margins have been volatile in the past few quarters (in 5-8 percent range), as the company was executing low-margin systems orders and revenue volatility in the industrial business. Domestic order book grew a modest 3 percent year-on-year in June 2017.
The support to international business from domestic operations, and a sharp rally in global commodity prices, is likely add to near-term margin risk, the report said.
- Estimate a 17 percent standalone EBITDA CAGR over FY17-19, helped by a low base and improved capex in an improving macro climate.
- Order book growth has been muted, capping upside risk to earnings
- Better-than-expected execution on international business restructuring reduces debt and cash flow risk.
- The stock trades at 20.8 times FY19e P/E, which offers limited room for expansion, notwithstanding the seemingly strong earnings outlook, because it partly reflects a low base