Alstom Projects-Severe Margin Compression, Inability To Pass Thru Costs.
CMP Rs 680; BSE: 532309
-French Power Equipment producer Alstom Projects has produced a poor set of numbers for FY08, with EPS a mere Rs 11.
-On FY08 earnings, stock fetches a PE of 64.
-This PE is thrice the PE being offered to BHEL, which has a order book nearly 10 times the size of Alstom and better & consistent earnings quality.
-The Alstom Project stock has under-scored what was shown by the results of Siemens and Bhel, that there are no pass thru provisions in any contract whatsoever to accommodate Steel price hikes, and resultant compression of margins.
-A conservative earnings projection and and even more conervative PE multiple should give Alstom Projects a Fair Value of Rs 250.
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