Ambit: 2QFY11 Result Preview for Construction

Construction
 Our coverage universe is expected to report a mixed set of growth numbers
across companies. The monsoons played a big impact as execution suffered.
 We expect Punj Lloyd to come out of losses and report profits despite a YoY
revenue decline by 27%; execution has improved with the Libya projects
moving on the ground.
 IVRCL has been unable to move much on the project during 1QFY11 though
with robust order booking the sites have gone up and full impact of these
delays would build up from 4QFY11. We expect 6% growth YoY for IVRCL.
 Nagarjuna Construction has a better order book mix (and is expected to
deliver 7.4% growth YoY.
 Gammon India is expected to deliver 42% growth in revenue YoY as the focus
is on executing legacy order book.
 Gammon Infra had no annuities due and the developer model being lumpy in
nature could see a decline of 50% YoY. This would result in losses at the net
level, and fixed costs, interest and depreciation will likely continue to hit P&L.
 Order book for our Construction universe at ~3x TTM revenues. 2QFY11 order
intake was muted, 2HFY11 expected to see a pick-up as NHAI orders worth
6,000km would see momentum picking up during October 2010-end or early-
November 2010. This would result in the re-rating of our coverage universe.
 EBIDTA margins continue to remain steady in the 9.5%-10% range as
commodity prices remain stable.
 Net margins may get impacted on account of increase in short term interest
cost owing to higher working capital loans.
 We remain positive on the sector and expect pick up in 2HFY11, Nagarjuna
Construction remains our top pick.