Strong Order Book - MBE's consolidated order book stood at Rs 4700cr (2.5x FY2010 consolidated revenue) at the end of Q2FY10 led by power sector which lends high revenue visibility. MBE bagged its second overseas order in Zambia of Rs. 89 crore from Vedanta Group firm Konkola Copper Mines in West Africa for a copper concentration plant and floatation circuit showing great visible earning.

Making a Global Presence - The company will be leveraging Humboldt presence in International markets to get EPC contracts. It will help MBECL to get EPC contracts in Middle East, South East Asia, Bangladesh & African countries.

Venturing Into EPC Model - MBECL is venturing into new EPC business in the core sectors of cement, oil & gas and nuclear power sector. The venturing into EPC business would ensure higher volume growth to the company. However, we expect the margins to remains subdued in EPC segment.

FUTURE VALUATIONS:

Outlook for the company is robust with all its business areas being in the high growth path. Although the company is operating in low-margin business, its ability to shore up volumes and its potential aided by its order book provide reasonable earnings visibility. The recent correction has further made the stock more attractive and investors may consider the stock with a medium-term outlook. At the current price of Rs. 235, the stock is trading at 8.43 times of our estimated FY11E earnings, while it's available at just 7.21x of FY12E. We thus recommend a `BUY' with a target price of Rs. 310.

During the quarter ended Sept, 2010, the net sales of the company reported an increment of 30.46% on y-o-y basis to Rs 401.68cr as against Rs 307.89cr during the corresponding quarter last year. On a sequential basis the company's performance was impressive, and the net sales saw an expansion of 41.70% from Rs 283.48cr to Rs. 401.68cr. On the operating front, the EBIDTA registered a growth of 47.36% to Rs 25.39cr from Rs 17.23cr as against corresponding period last year, while on sequential basis EBIDTA registered a growth of 48.57% from Rs 17.09cr. The company has been able to improve its operating margins, largely on account of higher capacity utilization. The net profit of the company saw an increment of 128.37% YoY to Rs 9.66cr as against Rs 4.23cr during the corresponding quarter, while on Q-o-Q basis the net profit inclined by 57.07% from Rs 6.15cr. The better-than-expected bottom-line performance of the company was mainly contributed by higher Top line of the company coupled with a slight decrease in interest cost.

KEY CONCERNS:

Slow down in industrial capex: Any slowdown in industrial capex cycle, any deterioration or unexpected negative developments in the macro environment, increase in fiscal deficit would limit the government's ability to spend and in turn impact the earnings visibility of the company, as MBE's business is dependent on the investment incurred in the infrastructure segment.

Raw Material Prices: Any rise in key material prices could have impacted the operating margins of the company, thereby impacting the profit earning ability of the company.

Delay in Execution: Any delay in execution on the part of the MBECL, can impact the working capital cycle of the company, thereby by resulting in higher interest outgo and lower profit.