Madhucon Projects faces profit squeeze

Madhucon Projects Ltd. | Engineering - Construction | Construction & Infrastructure | BSE: 531497 | NSE: MADHUCON

09 Feb 2010 Evaluate

Yesterday Madhucon had secured three hydro power projects of 25 MW each on a build-operate-transfer basis. These three projects will add around Rs 500 crore to the order book. Order book at present is around four times 2008-09 revenue of Rs 1,045 crore. The three projects will not add to revenue immediately as they have a gestation period of four-five years. Around 32% of its order book consists of irrigation projects, 23% of power and 27% is in roads, with the rest in mining, sugar and construction of buildings.

Madhucon’s financials for the nine months to December are not very upbeat. Revenue grew around 30% from a year earlier to Rs 820 crore. But higher costs brought down operating profit margin and net profit margin every quarter on both annual and sequential basis. Operating profit margin for April-December was 12%, against 15% in the year-ago period. And net profit margin dropped from 7% to 4%. Higher costs are mainly the result of the increase in raw material costs. This is due to the near-completion of a couple of road projects where material costs are already billed, while revenue is yet to trickle in.

Meanwhile, its 1,920MW coal-based power project will take off in four phases, with the first 300MW stage being commissioned during 2010. Financial closure for the second phase is in progress now. Besides, the company is into coal mining in Indonesia through a subsidiary. All these capex programmes have led to higher debt, and an increase in interest costs. From around Rs14 crore in the nine months to December 2008, interest expenses rose to around Rs20 crore in the nine months ended December 2009.

So while revenue has been growing, Madhucon’s net profit has contracted, particularly in the second and third quarter. For the nine months ended December, net profit contracted by 11% over the year-ago period to Rs36 crore. With the bulk of its existing projects in roads, irrigation and power getting monetized only by fiscal 2011, revenue for the full fiscal is expected to grow around 20% over the previous year’s figure of Rs 971 crore. Profit margins, too, are expected to remain under pressure.

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