Current Price Target Price

Rs. 173.45 Rs.210 Paterson Securities Private Limited

(formerly Patco Investments & Consultancy Services Pvt Ltd)
Potential upside Time Frame
21.07% 15 months
February 3, 2010

Analyst: V.Bharathy
Email: research@paterson.co.in
Jyoti Structures
Tel: 044- 42916504 / +919884616160
Jyoti Structures is one of the top 3 players in the Transmission Engineering
Relative Performance Procurement Construction (EPC) space in India. It is engaged in the manufacture of
transmission line towers, sub-station structures, railway electrification structures
etc. and also undertakes turnkey contracts for extra high voltage transmission lines
& substations.

Key positive factors for investment in Jyoti Structure

Stimulus provided by the power sector: There is a lot of action happening in the
power sector as envisioned by the 12th 5 year plan. Since transmission and
distribution are the verticals connected with the power sector, this company is
bound to profit from the current fortunes of the power sector. A revenue growth of
18% is almost ensured in the next 5-7 years as massive investments are to be
invested in the distribution and transmission segments of the power sector.

Modernization and expansion of the company: The Company is now flying high on
Bloomberg, Paterson Research a modernization and expansion spree, considering the growth that is expected to
take place in the next few years.

Stock Data Market share of the company: The Company is one of the three leading players
sharing around 60 % of the market share in power transmission and distribution
No. of Shares : 81.97 Mn segments. It is a highly organized sector with a humungous working capital
requirement - this being one of the many entry barriers. Hence the company rests
Market : Rs. 14.43 Bn in peace from the threat of entry
52 week high/low : Rs. 197/ Rs.44 A fat order book : Jyoti structures expects the order inflow to continue at a strong
pace over the next few quarters led by the huge investments planned by both
Avg. Daily Vol (6mts) : 329438 shares
central and state utilities. Over the next quarter, Jyoti is evaluating tenders worth
Bloomberg Code : JYS IN Rs70bn (Rs27bn from PGCIL) and another Rs8-9bn on BOOT basis from state
utilities such as Rajasthan and Haryana. Apart from these tenders, Jyoti is also
BSE Code/NSE Symbol : 513250/JYOTISTRUC expected to bid for Rs27bn worth of additional tenders' from PGCIL, which is yet to
award 35% of its planned expenditure of Rs130bn for FY10. The order backlog
stands at 1.9x for FY 10E and this is expected to drive the growth of the company
Shareholding(%): Jun-09 (Mar-09) for the next 2 years.

Promoters : 26.82% Consistent increase in the net profits: The sales turnover, operating profit and the
net profits from 2005 have been on the increase, showing that it a rapidly growing
MF/UTI : 29.79% company.

FI : 0.25% Insulated from the vagaries of the international climate: The Company has a
strong domestic presence (95%) with competent buyers like MSEB, NPTC and NTPC.
Corporate Bodies : 7.66% Though it is now entering the international market (5%), its dominant domestic
stronghold helps it to be insulated from the vagaries of the international risks like
FII : 16.18%
the currency volatility and raw material supply fluctuations
Individuals : 17.93%
Pass-through clauses: The escalation of raw material costs is unlikely to affect
margins as 95% of the order book has pass-through clauses

A focused player in the industry: Being a focused player, the company would be a
key beneficiary in the massive investments contemplated in the near future in the
transmission and distribution segment of the power industry by the Government

1 Paterson Securities Pvt. Ltd., SLCL

Paterson Securities Pvt. Ltd.

Probable risks in the investment which could be overlooked considering the

possible returns

Threat from new players: In spite of the heavy working capital requirement, some
new players have emerged, who are bidding at 15-20% below the bids of the
established players. The fact that Jyoti structure is one of the leading companies in
the sector is a factor which helps us to overlook this threat to a reasonable extent.
The management prefers margin defense to growth acceleration and would rather
expand overseas than match the aggressive bids in domestic orders.

Increase in interest rates and inflation: The sector being capital intensive, the
interest rate risk is a fairly serious issue of concern - more relevant in the face of this
recessionary business cycle. However, one can count on the
efficiency of the management of this company that has maintained the interest cost
at 11% till now on a debt of 3.8 Bn. The operating cycle has been stable till now.

A Y-o-Y and Q-o-Q comparison

3Q FY 10 3QFY 09 % CHG 2Q FY 10 % CHG

NET SALES 512.9 433.07 18.43 472.97 8.44

TOTAL EXPENSES 452.7 381.4 18.7 419.05 8.04
GROSS PROFIT 59.41 51.63 15.07 53.95 10.02
PBT 36.6 31 18.06 33.15 10.4
PAT 23.4 18.1 29.28 20.89 12
The increase in PAT is positive in both the comparisons

PROFIT AND LOSS AC

2005 2006 2007 2008 2009
OF JYOTI STRUCTURE

SALES TURNOVER 439.61 738.06 1024.98 1399.16 1738.51

TOTAL INCOME 440.61 714.85 924.25 1376.01 1738.54
OPERATING PROFIT 50.03 88.69 143.71 185.85 229.38
REPORTED NET PROFIT 11.53 27.67 55.02 72.41 79.74
EPS 8.34 20.02 6.82 8.92 9.76
BOOK VALUE 68.32 86.93 34.18 42.03 51.02
.
The consistency of the increase in profits for the past 5 years is evident.

Our View

The bullishness in the counter is mainly attributable to its leading position in

the sector and the efficient, focused nature of the management of the
company, which is extremely uncompromising in preserving margins.

The consistency in the increase in the net operating profits and the
profitability ratios from 2005 onwards are a strong factor to consider
investment in this counter.

The company is relatively more immunized from the vagaries of currency

risk (due to its dominant domestic position)

The company is strategically immunized from the vagaries of input

fluctuations (due to the pass-through clause)

2 Paterson Securities Pvt. Ltd., SLCL

Paterson Securities Pvt. Ltd.

The FY09 EPS is Rs. 9.76, the P/E ratio is 17.77 and the P/B ratio is at 3.47.
The P/E ratio of the company compares very favorably with the industry
P/E which is at 26.07.

Working out statistically, the projected EPS of the company stands at 14.2
for FY 2011 and at 16.9 for FY 2012 by conservative standards. At the
current price of Rs 173.45, the stock is quoting at 12.21 x its FY2011E and
at 10.26 x its FY2012E. The TTM EPS is at 10.69 which mean that the share
is available at just a little more than 16.22 times its TTM earnings. Hence
we recommend the stock at 173.45 with a BUY rating for a possible target
price of 210 in the next 15 months.

3 Paterson Securities Pvt. Ltd., SLCL

Paterson Securities Pvt. Ltd.

Disclaimer
This publication has been prepared solely for information purpose and does not constitute a
solicitation to any person to buy or sell a security. While the information contained therein has been
obtained from sources believed to be reliable, investors are advised to satisfy themselves before
making any investments. Paterson Securities Pvt. Ltd. has not independently verified all the
information given in this document. Accordingly, no representation or warranty, express or implied, is
made as to the accuracy, completeness or fairness of the information and opinions contained in this
document. Paterson Securities Pvt Ltd. does not bear any responsibility for the authentication of the
information contained in the reports and consequently, is not liable for any decisions taken based on
the same. Further, Paterson Research Reports only provide information updates and analysis. As per
SEBI requirements it is stated that, Paterson Securities Pvt Ltd. and/or individuals thereof may have
positions in securities referred herein and may make purchases or sale thereof while this report is in
circulation.

4 Paterson Securities Pvt. Ltd., SLCL