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IVRCL Infrastructure & Proj
Middle East entry wins $400mn
order - Boon or Bane
Wins International Govt. Utility order drive visibility; Buy
IVRCL expanded its water practice into overseas markets to capture 3
international orders worth Rs19.8bn - 91% Middle East and 9% Nepal. These
orders should add 20% to its FY11E order inflows (8% to 1Q11 order backlog)
and IVRC aims to have ~20% of its book from international markets. Company
claims margins in the order at similar to domestic markets. Further, the current
orders from Govt. utility will de-risk its water portfolio from slow moving AP state
and as the work is similar to as in India, alleviate our concerns on global
diversification. Buy IVRC on a) pick-up in execution from 3QFY11E on resurgence
in road orders, b) benign material prices and c) peaked interest costs, drive 28%
EPS CAGR over FY10-12E vs flat FY08-10 and d) stock is inexpensive in our
view at 7.9x (core business) FY12E EPS.
To add 20% to FY11E order inflows; de-risk water portfolio
IVRCL captured 3 international orders worth Rs19.8bn – 2 orders of Rs18bn from
Kingdom of Saudi Arabia for water transmission project from Hili & Yobba dams to
Al-Sohiba Plant Ph-III and Kholas & Rabigh dams to Jeddah Ph-I and Rs1.8bn in
hydro projects from Nepal Electricity Authority for 32MW Rahughat HEP, similar to
work it does in water & irrigation in India (For details see pg 3). These orders from
Govt. utility will de-risk its water portfolio from slow moving AP state and as the
work is similar to as in India alleviate our concerns on regional diversification.
Bullish on Roads; Parent balance sheet is OK on funding
We see mgt's renewed bullishness on roads as key driver of surprise ahead. Road
BOOT model has improved on a) higher govt. Grant (40%), b) Govt. support on land
acquisition promised by the new minister and c) lower interest rates. IVRC has a
well funded balance sheet to meet this growth – net D/E of 0.6x in FY10, while its
Infra arm, IVR Asset, will have to raise equity to fund new assets, in our view.
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