IVRCL’s first tryst in international market – A positive move :: Angel Broking,

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IVRCL’s first tryst in international market – A positive move
IVRCL Infrastructure (IVRCL) has forayed into the international market by bagging three
projects – two from Kingdom of Saudi Arabia and one from Nepal – aggregating to
`1,975cr. Two water transmission projects worth `1,800cr are from the Kingdom of Saudi
Arabia and are expected to be executed over 36 months. Further, order worth `175cr by
Nepal Electricity Authority pertains to construction of hydroelectric project with expected
construction period of 42 months. This is IVRCL’s first order in the international market –
following the footsteps of its peers – which adds to diversification. As a strategy, the
company has diversified both in terms of segment (reducing dependence on irrigation by
bagging huge orders in the road segment) and geographies (exposure to AP has reduced
over the last few quarters) over the last 12–18 months, since the AP crisis began, which we
believe would benefit the company in the long run.
We have valued IVRCL on an SOTP basis. The company’s core construction business is
valued at a P/E of 14x FY2012E EPS of `10.9 (`153/share), whereas its stake in
subsidiaries IVR Prime (`49/share) and Hindustan Dorr-Oliver (`14/share) has been
valued on an Mcap basis, post assigning a 30% holding company discount. At the CMP of
`153, the stock is trading at a P/E of 14.1x FY2012E EPS and 1.9x FY2012E P/BV on
standalone basis and adjusting for its subsidiaries at P/E of 8.8x FY2012E EPS and 1.1x
FY2012E P/BV, which we believe is at attractive valuations. Therefore, on the back of the
company’s excellent execution track record, robust order book-to-sales ratio and attractive
valuations, we maintain Buy on the stock with a Target Price of `216.