Buy IVRCL recommneds IDBI capital,

We expect IVRCL Infrastructures & Projects Ltd. (IVRCL) to post 16% revenue growth in FY11, led
by pick-up in execution in the coming quarters. Order inflow continues to remain strong but
concentrated. Due to extension in working capital cycle, earnings growth for FY11 is expected to
come lower at 8%. Overall, we expect a 20%/15% CAGR in revenue/earnings over FY10-12E. Initiate
coverage with a BUY rating. However, we prefer SINF and NJCC over IVRCL.
Investment Highlights
􀂄 Strong order book (4.3x TTM sales) keeps revenue prospects high
Including L1 orders, IVRCL's order book stood at Rs233 bn as of June 2010 or 4.3x TTM revenue. The
order inflow continues to remain strong, with IVRCL booking Rs40 bn orders in Q1FY11 v/s Rs87 bn for
entire FY10. We have assumed an order inflow of Rs110 bn for FY11 and FY12 each, primarily led by
BOT projects.
􀂄 Execution set to pick-up in H2FY11; revenue CAGR of 20% over FY10-12E
IVRCL lost ~Rs2.5 bn in revenue during Q1FY11 as execution was held up in three projects due to clientled
delays. We expect a topline growth of 19% YoY for the rest of the fiscal led by pick-up in execution and
low base effect of Q2/Q3 FY10. We expect IVRCL to report 20% CAGR in revenue over FY10-FY12E.
􀂄 EBITDA margins to remain stable; higher interest cost to lower earnings growth
We have assumed an EBITDA margin of 9.6% over FY10-12E (9.7% in FY10). As a result, EBITDA
growth (18% CAGR) is expected to remain in line with revenue growth. We have factored Rs5.5 bn
increase in net working capital for FY11 (against Rs6 bn in Q1FY11), resulting in a 28% YoY increase in
interest cost. Consequentially, adj. PAT is set to grow at a CAGR of 15% over the next 2 years.
􀂄 Aggressive scale-up in BOT; subsidiary not dependent upon parent for funding
IVRCLAH, the listed subsidiary, has added 7 BOT projects worth Rs109 bn in the past one year, taking the
total BOT portfolio size to Rs129 bn (12 projects). Since, the subsidiary is not dependent upon parent for
its funding requirements, the aggressive scale-up in BOT portfolio is unlikely to put any strain on parent's
balance sheet/cash flows. However, equity IRRs of operational BOTs are in the range of 11-13%, well
below the initial expectation of 18-20% at the time of bidding.
􀂄 Valuations attractive; Recommend BUY with a TP of Rs190
We have valued IVRCL's core construction business at Rs126 based on 12x FY12 EPS. We believe
IVRCL should trade at a discount to NJCC (13x) given its concentrated order book and relatively lower
earnings growth. Based on 30% discount to current market-cap, IVRCLAH and HDOR, contribute Rs50
and Rs14 per share, respectively. Lower than expected execution and a further deterioration in working
capital are the key risks to our recommendation.