FY18 Q1 results. At the consolidated level, the company reported a net loss ofINR481m; including discontinued operations, there was a loss of INR860m. A largepart of weak operating performance was attributable to slower sales in Indonesia onaccount of the local festival during the period and company’s attempt to push salesbefore the onset of the goods and services tax (GST) at low margins.    Takeaways from the call. The company announced that divestment of its Hungarianbusiness is at the final stage and it has accepted the binding offer for sale at an EV ofEU38m. It believes that it will complete the deal by November. Its divestment of theUS business is also now complete. On the operational side, company intends to takeprice increase in industrial business which it deferred during the last quarter in anattempt to push sales pre-GST. It also remained confident of return of its business inIndonesia to normalcy.    Domestic power and industrial business to improve. Domestic power transformerbusiness is growing modestly on account of its increasing presence on solar side.    The industrial business is growing strongly in double digits and is generating benefitsof operating leverage largely on account of its products for railways business. ItsIndonesian power business which was earlier put up for sale is now seeing improvingbusiness traction as Indonesia has embarked on its plan to build 35GW of powerplants by 2019.    Investment view. The big delta for the company will come from sale of its overseaspower business in Hungary, Belgium and Ireland as they have been a drag on thecompany’s profitability. We expect them to account for INR1.5bn (vs earlierexpectation of INR3bn) losses in FY18 thus finally resulting in profit for the full year.    Valuation and risks. We cut our FY18/19e EPS estimates by 22/ 7% as we accountfor significantly weaker 1Q performance and project slower margin improvement inFY19e, as the solar segment is likely to face some slowdown due government policies.    We are 5% below consensus on EPS from continued business. We value the companyon DCF of continued business and assign a zero value to business up for sale. Ourvaluation remains unchanged at INR75, as the slightly slower pace of improvementthat we now forecast is offset by the faster-than-expected of sale of the loss-makingdiscontinued business. Key upside risks are good valuation for discontinued business;a downside risk is an inability to sell the discontinued business for long period.

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