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IVRCL Infra & Projects
Better than expected EBITDA margins
IVRCL for 3QFY11 registered ~100bp qoq increase in standalone EBITDA margins
to 9.8% (RBS est 9.5%). However, net sales came 11% below estimates leading to
a 26% negative surprise at PAT level. With margin coming back on track we see
recent weakness in the stock price as a good buying opportunity.
3QFY11 standalone highlights: margins improved but sales disappointed
! Net sales at Rs14.2bn, +20% yoy and +32% qoq, 11% below RBS estimate.
! EBITDA came at Rs1.4bn, +21% yoy and +46% qoq, RBS estimate was Rs1.5bn.
! EBITDA margin rose 97bp qoq to 9.8% (flat yoy) after dipping to sub 9% level in the previous
quarter. RBS estimate was 9.5%.
! Depreciation was Rs189m, +36% yoy and +2% qoq; RBS estimate was Rs172m.
! Net interest was Rs592m, up 61% yoy and 23% qoq in line with RBS estimates.
! Non-operating income declined sharply to Rs11m vs Rs.57m in 2Q.
! Tax rate of 33% was in line with estimates.
! Normalised (as well as reported) profit came at Rs423m, up 82% qoq but down 8% yoy and
26% below RBS estimate due mainly to lower sales impact.
! EPS for 3Q was Rs1.5/share.
9MFY11 performance: higher depreciation and interest costs weigh in
! Net sales at Rs36.0bn, up 2% yoy as execution was low during 2Q.
! EBITDA at Rs3.4bn, flat yoy, the marginal increase in sales was offset by higher personnel
and other expenses.
! EBITDA margins at 9.4%, down just 18bp yoy.
! Depreciation is at Rs530m, up 32% qoq.
! Net interest costs rose 37% yoy to Rs1.52bn.
! As is the case with other construction stocks in our coverage, higher depreciation and net
interest led to a 24% yoy normalised PAT decline of Rs976m.
! Reported net profit declined 27% yoy to Rs936m.
! Normalised EPS for the 9MFY11 was Rs3.5/share.
Subsidiaries performance
! Listed subsidiary of IVRCL Assets and Holdings reported a net loss of Rs.114m for 3QFY11
(2QFY11 loss was Rs.151mn) on net sales of Rs.1.92bn (2QFY11 Rs.1.32bn).
! Hindustan Dorr Oliver, the other listed subsidiary of the company, reported a net profit of
Rs.152m (2QFY11 net profit was Rs.20m) on net sales of Rs.2.53bn (2QFY11 Rs.2.44bn).
Valuation
! Despite missing our sales estimates we believe that margin coming back to normal levels
bodes well for the company and we find the stock attractive, particularly after the recent sharp
correction. We await the management call before adjusting our forecasts.
Valuation and risks to target price
IVRCL Infra & Projects (RIC: IVRC.BO, Rec: Buy, CP: Rs66.40, TP: Rs172.55): Key risks to our SOTP-based target price are: 1) lack of availability of skilled and experienced
professionals in the high-growth construction industry; 2) a sharp increase in steel and cement prices affecting margins, although most new orders have a cost-escalation clause; 3) a
sharply lower-than-expected ramp up in infrastructure spending by key clients; and 4) equity fund raising by IVRCL or its subsidiaries to meet expansion needs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IVRCL Infra & Projects
Better than expected EBITDA margins
IVRCL for 3QFY11 registered ~100bp qoq increase in standalone EBITDA margins
to 9.8% (RBS est 9.5%). However, net sales came 11% below estimates leading to
a 26% negative surprise at PAT level. With margin coming back on track we see
recent weakness in the stock price as a good buying opportunity.
3QFY11 standalone highlights: margins improved but sales disappointed
! Net sales at Rs14.2bn, +20% yoy and +32% qoq, 11% below RBS estimate.
! EBITDA came at Rs1.4bn, +21% yoy and +46% qoq, RBS estimate was Rs1.5bn.
! EBITDA margin rose 97bp qoq to 9.8% (flat yoy) after dipping to sub 9% level in the previous
quarter. RBS estimate was 9.5%.
! Depreciation was Rs189m, +36% yoy and +2% qoq; RBS estimate was Rs172m.
! Net interest was Rs592m, up 61% yoy and 23% qoq in line with RBS estimates.
! Non-operating income declined sharply to Rs11m vs Rs.57m in 2Q.
! Tax rate of 33% was in line with estimates.
! Normalised (as well as reported) profit came at Rs423m, up 82% qoq but down 8% yoy and
26% below RBS estimate due mainly to lower sales impact.
! EPS for 3Q was Rs1.5/share.
9MFY11 performance: higher depreciation and interest costs weigh in
! Net sales at Rs36.0bn, up 2% yoy as execution was low during 2Q.
! EBITDA at Rs3.4bn, flat yoy, the marginal increase in sales was offset by higher personnel
and other expenses.
! EBITDA margins at 9.4%, down just 18bp yoy.
! Depreciation is at Rs530m, up 32% qoq.
! Net interest costs rose 37% yoy to Rs1.52bn.
! As is the case with other construction stocks in our coverage, higher depreciation and net
interest led to a 24% yoy normalised PAT decline of Rs976m.
! Reported net profit declined 27% yoy to Rs936m.
! Normalised EPS for the 9MFY11 was Rs3.5/share.
Subsidiaries performance
! Listed subsidiary of IVRCL Assets and Holdings reported a net loss of Rs.114m for 3QFY11
(2QFY11 loss was Rs.151mn) on net sales of Rs.1.92bn (2QFY11 Rs.1.32bn).
! Hindustan Dorr Oliver, the other listed subsidiary of the company, reported a net profit of
Rs.152m (2QFY11 net profit was Rs.20m) on net sales of Rs.2.53bn (2QFY11 Rs.2.44bn).
Valuation
! Despite missing our sales estimates we believe that margin coming back to normal levels
bodes well for the company and we find the stock attractive, particularly after the recent sharp
correction. We await the management call before adjusting our forecasts.
Valuation and risks to target price
IVRCL Infra & Projects (RIC: IVRC.BO, Rec: Buy, CP: Rs66.40, TP: Rs172.55): Key risks to our SOTP-based target price are: 1) lack of availability of skilled and experienced
professionals in the high-growth construction industry; 2) a sharp increase in steel and cement prices affecting margins, although most new orders have a cost-escalation clause; 3) a
sharply lower-than-expected ramp up in infrastructure spending by key clients; and 4) equity fund raising by IVRCL or its subsidiaries to meet expansion needs.
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