Goldman Sachs puts ‘Buy’ on Lanco Infratech

MUMBAI: Goldman Sach has put a ‘Buy’ call on Lanco Infratech after the Supreme Court dismissed the case relating to the dispute with Madhya Pradesh Power Trading Company. The FII expects Lanco Infratech to touch target of Rs 61 per share in next one year.

“With dismissal of the case by the Supreme Court, we believe visibility on mechanism of sale of output from Unit 1 has improved. We believe this news is positive, as we assume in our base case scenario that the output from Unit 1 will be sold under a fuel pass-through mechanism.

We expect the stock’s underperformance versus BSE Power (4% YTD) to narrow in the medium term primarily due to a threefold increase in capacity (to 2300MW from 750MW) by FY11E on commissioning of (1)
600MW of Amarkantak, (2) 133 MW of Kondapalli Phase II, and (3) 1,015MW Udupi plant, and we consequently expect Lanco’s earnings profile to improve in FY11E with the power division accounting for 72% of FY11E EBITDA.

We value Lanco on a SOTP methodology with a 12-month target price of Rs 61. We estimate Lanco will deliver a 66% EPS CAGR over FY10E-FY12E. Shares are trading at a discount to peers on FY11E P/E and P/B,” the report said.