IVRCL Infra – ADD Disappointing 2Q; FY11 guidance at risk:: IIFL

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IVRCL Infra – ADD
Disappointing 2Q; FY11 guidance at risk


• IVRCL Infra’s 2QFY11 revenues declined 13.5% YoY to Rs10.5bn—
below our estimates of 13% YoY growth. While contractors have
witnessed muted 2QFY11, the extent of negative surprise has been
higher in case of IVRCL.

• Heavy monsoons impacted execution. Additionally, specific projectrelated
issues in 1Q, which resulted in a revenue loss of Rs2.5bn in
1Q, have not been fully resolved yet.
• After a 6% YoY decline in revenues in 1H, achieving 25%+ revenue
growth guidance in FY11 would be a tough ask. We further cut our
below-guidance revenue estimates for FY11.
• 2QFY11 EBITDA margins contracted 238bps YoY to 6.7% impacted by
negative operating leverage. As a result, EBITDA declined 36% YoY,
way below our estimates.
• This is the second consecutive quarter of poor profitability. Adjusted
1QFY11 margins stood at 5.5%. We could see some downward
revision to EBITDA margin guidance in FY11.
• Interest costs increased 36% YoY (6% QoQ). Debt at Rs22.7bn is up
40% during 1H, but at the same level as end-1QFY11. Increased
borrowings were used to fund the Rs7.1bn increase in net working
capital, despite Rs1.3bn decline in revenues during 1H. Higher
working-capital cycle was driven by sharp increase in other current
assets, and loans and advances, and a decline in current liabilities.
• PBT declined 52% YoY to Rs345m. PBT decline would have been
steeper, but for the large Rs304m other income.
• We have cut our estimates by 6-8% for FY11-13 driven by decrease in
revenue and margin estimates.
• However, order inflows remain strong. Total inflows of Rs53.5bn
during 2Q include large orders totalling Rs19.8bn from international
geographies. End-2QFY11 order book of Rs240bn (order coverage of
4.6x) provides ample revenue visibility for the next three years.