IVRCL: Time to raise Red Alert:: Elara

Visit http://indiaer.blogspot.com/ for complete details �� ��


Time to raise Red Alert
Dismal operational show continues; all set to miss yearly guidance
IVRCL’s horrific execution performance continued in Q2FY11 with
sales taking a 14.4% YoY dip to INR10.8bn (vs our expectation of
INR12.1bn). Operating margins at 8.9% declined by 101bps YoY, led
primarily by a significant rise of 514bps and 260bps in masonry and
labor expenses, and employee costs respectively. Consequently,
operating profits for the period decelerated sharply by 23.2% YoY to
INR953mn. Higher interest (+35.8% YoY) and depreciation (+38.4%
YoY) charges, though in line with our expectations, further spoilt the
party at the net profitability level as the company reported a massive
decline of 51.4% YoY in net profits to INR233mn (vs our expectation of
INR336mn).


Order backlog brightens further, adds INR53.4bn worth fresh jobs
IVRCL's order book as of date stands at ~INR240bn including L1 jobs
worth INR12bn. The company has bagged fresh orders worth
INR22.5bn in Q2 and INR53.4bn since Q1, registering a growth of
31.3% YoY in backlog YTD. We expect the company to bag additional
INR28bn worth of projects and close FY11 with a backlog of INR240bn
(+29.4% YoY).

Cut estimates, rating; Revise target price downwards to INR157
IVRCL’s persistent execution hiccups over the past few quarters have
been disappointing. Despite the management’s assurance of a more
than two fold rise in H2FY11 revenues vis-à-vis H1FY11 performance,
we find little comfort in these claims given the status quo. We are of a
strong opinion that in spite of amassing a huge order backlog, IVRCL is
facing serious execution and margin issues on some large contracts
which are expected to extend over the next few quarters thereby
impacting its performance significantly. Consequently, we find it
prudent to curtail our earnings estimates for FY11 and FY12 by 25%
and 26.8% respectively. We downgrade our recommendation to
‘Accumulate’ with a revised SOTP based price target of INR157.