India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Construction
• Our interaction with industry players indicates an uptick in the execution for third quarter both sequentially and year on
year. Our estimates take that into account, and project 22% YoY top line growth. Operating margins continue to remain
under pressure as key cost components like raw material and labor are showing rising trend
• Order book growth continues to be healthy in double digits, book to bill ratio at 3.4x FY10 revenues. The strength in IIP
numbers and build up in corporate capex continues to support the growth in order book. We are estimating limited
scope for margin improvement and hence execution and revenue growth remain key variables on our watch list
• Working capital and concomitant interest costs continue to be undo healthy order book and topline growth for the
sector. Our universe of companies under coverage has seen an increase in leverage from 1.1x to 1.30x over last six
months
• NHAI has been indicating significant order releases of as high as 14,000 km road projects next couple of quarters.
However, going by the record July –Oct 2010 last few months during which 190 kms (YTD in FY 11‐3063 kms) of road
projects were awarded, we remain skeptical. The recent low is worse than the FY 10 in which 3361 kms of projects
were awarded
• Furthermore, the Road Transport ministry’s agreement with truckers to lower the toll for three‐axle trucks by Re 1 per
kilometer will impact the economics of the toll projects. However, there will be no impact on private funded BOT road
projects which have been already awarded
• We like building construction companies like Ahluwalia Contracts and Man Infraconstruction over pure infra player
on account of better margins, positive cash flows and debt free status. In core infrastructure space we like Sadbhav
Engineering due to strong capitalization and better record on project execution
Construction – Top Picks
Sadbhav Engineering
• Well capitalized with recent raising of Rs. 4 bn PE investment in SIPL and Rs. 1.2 bn rights / convertible warrants.
Improved net worth augurs well in bidding for large BOT projects
• Order book at Rs. 78bn (6x FY10 revenues) ensures revenue visibility. The company has added new orders worth Rs.
12 bn during FY11 till date. Strong top line CAGR of 35% and bottom line CAGR of 62% between FY10 and FY12 led
by accelerated execution of road projects. Bottom line growth estimated to be highest amongst the peers till FY12
• SIPL to turn strongly earnings accretive next 24 months months. We estimate toll revenue of Rs. 882 mn by FY11 and Rs.
1839 mn by FY12. EBIDTA margin to show improvement and is expected to stabilize at 11.7% for the net two fiscals
• We value SEL on the SOTP basis and arrived at a fair price of Rs. 189 (SOTP: BOT – Rs. 94 and Construction – Rs. 95
by discounting FY12 construction earnings of Rs. 9.5 by 10x). We reiterate a BUY on the stock
No comments:
Post a Comment