Stoppage of work in Chennai Airport, cost over run in DMRC project, and unprecedented high rainfall during Aug-Sept’10 in south India resulted in lower sales and EBITDA margin. Topline was 5% below our estimate at Rs4.9bn, a 8.5% YoY growth. EBITDA margin was lower at 7.8% vs 8.5% expected, while PAT was lower at Rs137mn, (35.1)% YoY vs expected Rs194mn.

Revenue loss of Rs500mn due to accident During the quarter, a fatal accident caused stoppage of work in Chennai Airport for 3 weeks, resulting in loss of work to about Rs500mn. Whereas overheads and idle wages continued to eat into operating margin. However, now the work has resumed and management expects to cover up the lost work in second half. The outstanding work in hand stands approximately at Rs5bn.

Cost over run in DMRC project leads to Rs82mn loss Technical and design changes for the DMRC car parking project, which is a fixed contract has lead to cost over run of Rs82mn. The company is working at recovering the loss through arbitration process, the full cost has been taken to books.

Multiple factors leading to lower margin In order to cover the lost work due to unprecedented rainfall, the company hired large equipments which cost dearer by Rs27mn. Apart from this idling labor force and fixed overheads during the stoppage period resulted in lower margin at 7.8% in Q2FY11.

Lowering margin expectation Due to lower EBITDA margin in H1FY11 at 8% and the cost overrun we marginally tone down our margin for FY11 to 8.9% from 9.2%, consequently reducing our earnings to Rs5.5 from Rs5.7 for FY11. However we take this as a short-term phenomenon and continue to value the company on FY12 earning, which is unchanged at Rs7.6.

Strong order inflow Current order book stands at Rs44.9bn, 2.3x FY10 revenue. The company has booked strong orders of Rs21.3bn in first half, which is inline with our expectation of Rs42.5bn for the whole FY11.

VALUATIONS & RECOMMENDATION Considering strong order inflow and expectation of ramp up of work in second half of the year, we continue with our BUY rating with target price of Rs107. We have valued the company at 14x FY12 earning of Rs7.6.