Recommendation: Buy
CMP = Rs 757
Price target: Rs 1,060
Result highlights:
- Orbit Corporation has announced its results for Q3FY2008. Since the company had come out with its initial public offering (IPO) in March 2007, a year-on-year (y-o-y) comparison of its results is not possible. Hence, I have considered quarter-on-quarter (q-o-q) comparison.
- Orbit's revenues grew by 129.3% quarter on quarter (qoq) to Rs 223.6 crore in Q3FY2008 as the company started booking revenues from Orbit WTC. The company booked revenues worth Rs 151 crore from this project.
- Orbit's operating profit margin (OPM) contracted by 328 basis points qoq to 46.2% during the quarter under review. The decline was largely due to a higher revenue contribution from the open space project (Orbit WTC), which has a lower margin compared with the redevelopment project.
- Orbit also reported interest expenses of Rs 27.7 crore compared with Rs 3 crore in Q2FY2008, as it had raised debt worth Rs 300 crore for the Orbit WTC project. The effective tax rate for the company also increased to 28.0% in Q3FY2008 from 12.4% in Q2FY2008 as most of its projects were fully taxed during the quarter compared with all the projects qualified under section 80 IB taxed at the minimum alternative tax (MAT) rate in the previous quarter.
- At the current market price of Rs 757, Orbit is discounting its FY2008E earnings by 15.0x and FY2009E earnings by 9.8x.
- I maintain positive stance on the stock and maintain Buy recommendation with a price target of Rs 1,060.
