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TJL reported a 7% YoY increase in earnings for 2QFY15, supported by moderate topline growth (+7% YoY) and technical service fees of Rs. 21mn from Ocean India, which offset margin contraction and a decline in net finance income. While 1HFY15 earnings are 11% lower YoY (due to a weak first quarter), our full year forecasts for FY15E remain broadly unchanged. Factoring in the margin impact of a delay in commencement of operations of the company’s multi fuel boiler plant, and a higher than expected share of outsourced business for the year, we now project full year earnings of Rs. 1.38bn for FY15E (a 5% reduction vs. our previous forecast of Rs. 1.45bn). We expect an uptick in business volumes in the early half of 3QFY15, on the back of a likely increase in orders from retailers for the Christmas season. This, coupled with a 15% reduction in electricity tariffs and likely short term margin benefit from the sharp decline in cotton prices over the last 5-6 months, should support healthy bottom line growth in 2HFY15. Our earnings projections are, however, subject to revision in the event of further increases in dye and chemical prices.
At its current price of Rs. 20.00, TJL trades at a FY15E P/E multiple of 9.6x, at a >30% discount to the FY15E market P/E.
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