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Q3 Provides Relief, Outlook Better - Buy
IVRCL Infra’s Q3 numbers were better than both our and
street’s expectations. EBITDA margin at 9.9% was a
surprise after the H1FY11 disappointment (we had
modelled 9.2%) and the company maintained the range of
9.5%-10.5%. Concerns over funding on BOT assets were
somewhat addressed in the con-call. However, the orderbook
remains stagnant at Rs240bn and order intake
outlook corroborates peers view of dullness. Internal BOT
projects would enable the company to maintain control on
working capital, going forward, which we factored in our
initiation report on the sector. Q3 working capital is almost
flat at Q2 levels. We have reduced our estimates
marginally and adjust FY12 P/E multiple from 13x to 10x
on dull order intake in the sector. Maintain Buy with a
revised target price of Rs113 (upside of 58%).
Maintains its FY11 revenue guidance of Rs62.5bn, but
conservative growth of 15% guided for FY12: The
company guided moderate 15% revenue growth in FY12
on account of continued disappointments in H1FY11. We
consider FY11 revenue guidance of Rs62.5bn aggressive.
Current order-book enough to drive FY12 revenues:
OB of Rs240cr is ~4x FY11 revenues, which the company
expects to easily deliver at least 15% growth for FY12.
Maintain Buy: We maintain Buy on the stock, though with
reduced estimates and lower P/E multiple from 13x earlier
to 10x on dull order-intake outlook. Our SOTP price comes
at Rs113 (upside of 58%) from current level of Rs71.
Strategy: Though short-term pressure on order intake
and execution would arrest the immediate spike, we
believe, the stock has been hammered more than it
deserved (down 34% over 1M, 48% 3M and 55% 6M
period) and hence it presents a good entry point for
investors.
Q3FY11 Results Review
Overall, results were good enough to light-up the mood in construction sector and put a
break on disappointments from IVRCL’s point of view.
Revenue at Rs14.2bn was marginally higher (by 3.6%) v/s our expectation of Rs13.7bn. However, it is
11% lower than street’s expectation of Rs15.9bn. We had forecast lower topline growth because
H1FY11 numbers were highly disappointing.
Operating margin (EBITDA margin) also surprised on the upside at 9.9% v/s expectations of 9.2%.
Though, 2H of the financial year shows good operating profits, we were conservative due to H1FY11
disappointments. The management in its conference call guided for a range of 9.5%-10.5% as a
sustainable level for the current order-book.
Interest expense as well as depreciation came inline with our expectations; however other income
was lower at Rs11mn v/s our expectation of Rs41mn.
Net profit at Rs423mn was 21% higher than our expectation of Rs350mn. This was primarily on
account of 70bps surprise in operating margins.
Updates on EPC – core construction business
Order-book position: The order-book of around Rs240bn includes L1 of Rs20bn. Andhra Pradesh
order backlog is Rs30bn, of which around Rs20/Rs25bn is back-to-back arranged with subcontractors.
Maharashtra contributes 30% of the order-book, mostly road projects. Internal orderbook
consists of Rs60bn.
Maintains FY11 revenue guidance of Rs62.5bn: The management maintains its FY11 revenue
guidance of Rs62.5bn (as revised in the Q2FY11 conference call). Consequently, the company
expects revenue of Rs27bn in the Q4FY11 (up 90% QoQ and 43% YoY) which we believe is on the
higher side. We maintain our Q4FY11 revenue estimate at Rs22.5bn (up 60% QoQ and 20% YoY). The
management said January run-rate was Rs7bn giving enough comfort for achieving Rs27bn revenue
in Q4FY11.
Andhra Pradesh region update – The company booked Rs1bn revenue in Q3FY11 (Rs2.5bn for
9MFY11). Outstanding receivables stand at Rs510mn.
Capex for FY11: Capex is expected to be around Rs1.65bn for FY11 of which Rs1.1bn is has already
been spent in 9MFY11.
Road sector to contribute high-teen’s share of revenue over next 1-2 years: Company said the
road segment, which currently contributes in high-single digits to its revenue, would almost double
in 1-2years. This is on account of ramping-up the execution of various projects. The company has
bagged many road projects in the past 1-1.5years.
Operating margins expected to be between 9.5%/10.5% on current order-book: The
management guided an EBITDA margin range of 9.5%-10.5% on the current order-book. 9MFY11
operating margin was 8.84% lower than the company’s target (note that this is on account of
disappointing H1FY11 profitability). We have modeled in 9.4% for FY11 and 9.7% for FY12.
Interest expenses: The rise in interest expense is on account of interest rate which rose from 8.5%-
9% earlier to 10%-10.5% now.
Updates on BOT projects in IVRCL Asset & Holdings
The company said that concerns on fund raising for BOT assets are overblown. The management
pointed out it could take recourse to various means of funding like stake sale and cash from
operational projects, real estate sales, etc. The management also made a significant statement that
the company would not go for QIP for funding BOT projects.
Update on other projects
Sion-Panvel project signed concession agreement with MSRDC.
Goa-Maharashtra Project: Signing of Concession Agreement (CA) which was supposed to
happen in November is scheduled to be completeed in 10days. Subsequently financial closure
of the project would be achieved.
25%-30% of Baramati-Phaltan road project is complete .
17% of Indore-Gujarat is complete.
7% of Chengapalli is complete .
Execution is yet to start of Chandrapur project
35% (overall) of IOTL is complete IVRCL’s share is complete to the extent of 65%.
Estimates lowered marginally
We have revised our estimates. Estimates for FY11 have been marginally raised due to better
Q3FY11 and lowered for FY12 to be more inline with company’s expectation of 15% (though, we
model slightly higher at 18% revenue growth for FY12). We lower FY12 revenue by 7% from
Rs74.5bn to Rs69bn. However, we revise our margins upwards by ~30bp from 9.4% earlier to 9.7%
now on better visibility of project execution compared to H1FY11 (but are still on the lower side of
the company guidance range of 9.5%-10.5%). Net profit gets reduced effectively by 9%.
Maintain Buy with reduced target price of Rs113
IVRCL’s stock price has corrected by 34% over 1 month, 48% over 3 months and 55% over 6 months.
We believe concerns regarding the company were overblown and it is trading at attractive
valuations even considering conservative assumptions. The core EPC business of IVRCL
Infrastructure trades at FY12 P/E of 5x (adjusted for stake in listed subsidiary “IVRCL Asset & Holding”
and “Hindustan Dorr Oliver”). We have also revised our target P/E multiple from 13x to 10x for FY12
given that the order-book scenario in the sector has worsened. We believe the risk-reward of the
company provides an attractive entry point for investors after the undue correction and also looking
at the FY12 execution prospects. We value IVRCL Infra’s standalone business at Rs83 (10X on FY12
EPS of Rs8.3) and listed subsidiary at Rs31 totaling Rs113 providing an upside of 58% at the current
market price.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Q3 Provides Relief, Outlook Better - Buy
IVRCL Infra’s Q3 numbers were better than both our and
street’s expectations. EBITDA margin at 9.9% was a
surprise after the H1FY11 disappointment (we had
modelled 9.2%) and the company maintained the range of
9.5%-10.5%. Concerns over funding on BOT assets were
somewhat addressed in the con-call. However, the orderbook
remains stagnant at Rs240bn and order intake
outlook corroborates peers view of dullness. Internal BOT
projects would enable the company to maintain control on
working capital, going forward, which we factored in our
initiation report on the sector. Q3 working capital is almost
flat at Q2 levels. We have reduced our estimates
marginally and adjust FY12 P/E multiple from 13x to 10x
on dull order intake in the sector. Maintain Buy with a
revised target price of Rs113 (upside of 58%).
Maintains its FY11 revenue guidance of Rs62.5bn, but
conservative growth of 15% guided for FY12: The
company guided moderate 15% revenue growth in FY12
on account of continued disappointments in H1FY11. We
consider FY11 revenue guidance of Rs62.5bn aggressive.
Current order-book enough to drive FY12 revenues:
OB of Rs240cr is ~4x FY11 revenues, which the company
expects to easily deliver at least 15% growth for FY12.
Maintain Buy: We maintain Buy on the stock, though with
reduced estimates and lower P/E multiple from 13x earlier
to 10x on dull order-intake outlook. Our SOTP price comes
at Rs113 (upside of 58%) from current level of Rs71.
Strategy: Though short-term pressure on order intake
and execution would arrest the immediate spike, we
believe, the stock has been hammered more than it
deserved (down 34% over 1M, 48% 3M and 55% 6M
period) and hence it presents a good entry point for
investors.
Q3FY11 Results Review
Overall, results were good enough to light-up the mood in construction sector and put a
break on disappointments from IVRCL’s point of view.
Revenue at Rs14.2bn was marginally higher (by 3.6%) v/s our expectation of Rs13.7bn. However, it is
11% lower than street’s expectation of Rs15.9bn. We had forecast lower topline growth because
H1FY11 numbers were highly disappointing.
Operating margin (EBITDA margin) also surprised on the upside at 9.9% v/s expectations of 9.2%.
Though, 2H of the financial year shows good operating profits, we were conservative due to H1FY11
disappointments. The management in its conference call guided for a range of 9.5%-10.5% as a
sustainable level for the current order-book.
Interest expense as well as depreciation came inline with our expectations; however other income
was lower at Rs11mn v/s our expectation of Rs41mn.
Net profit at Rs423mn was 21% higher than our expectation of Rs350mn. This was primarily on
account of 70bps surprise in operating margins.
Updates on EPC – core construction business
Order-book position: The order-book of around Rs240bn includes L1 of Rs20bn. Andhra Pradesh
order backlog is Rs30bn, of which around Rs20/Rs25bn is back-to-back arranged with subcontractors.
Maharashtra contributes 30% of the order-book, mostly road projects. Internal orderbook
consists of Rs60bn.
Maintains FY11 revenue guidance of Rs62.5bn: The management maintains its FY11 revenue
guidance of Rs62.5bn (as revised in the Q2FY11 conference call). Consequently, the company
expects revenue of Rs27bn in the Q4FY11 (up 90% QoQ and 43% YoY) which we believe is on the
higher side. We maintain our Q4FY11 revenue estimate at Rs22.5bn (up 60% QoQ and 20% YoY). The
management said January run-rate was Rs7bn giving enough comfort for achieving Rs27bn revenue
in Q4FY11.
Andhra Pradesh region update – The company booked Rs1bn revenue in Q3FY11 (Rs2.5bn for
9MFY11). Outstanding receivables stand at Rs510mn.
Capex for FY11: Capex is expected to be around Rs1.65bn for FY11 of which Rs1.1bn is has already
been spent in 9MFY11.
Road sector to contribute high-teen’s share of revenue over next 1-2 years: Company said the
road segment, which currently contributes in high-single digits to its revenue, would almost double
in 1-2years. This is on account of ramping-up the execution of various projects. The company has
bagged many road projects in the past 1-1.5years.
Operating margins expected to be between 9.5%/10.5% on current order-book: The
management guided an EBITDA margin range of 9.5%-10.5% on the current order-book. 9MFY11
operating margin was 8.84% lower than the company’s target (note that this is on account of
disappointing H1FY11 profitability). We have modeled in 9.4% for FY11 and 9.7% for FY12.
Interest expenses: The rise in interest expense is on account of interest rate which rose from 8.5%-
9% earlier to 10%-10.5% now.
Updates on BOT projects in IVRCL Asset & Holdings
The company said that concerns on fund raising for BOT assets are overblown. The management
pointed out it could take recourse to various means of funding like stake sale and cash from
operational projects, real estate sales, etc. The management also made a significant statement that
the company would not go for QIP for funding BOT projects.
Update on other projects
Sion-Panvel project signed concession agreement with MSRDC.
Goa-Maharashtra Project: Signing of Concession Agreement (CA) which was supposed to
happen in November is scheduled to be completeed in 10days. Subsequently financial closure
of the project would be achieved.
25%-30% of Baramati-Phaltan road project is complete .
17% of Indore-Gujarat is complete.
7% of Chengapalli is complete .
Execution is yet to start of Chandrapur project
35% (overall) of IOTL is complete IVRCL’s share is complete to the extent of 65%.
Estimates lowered marginally
We have revised our estimates. Estimates for FY11 have been marginally raised due to better
Q3FY11 and lowered for FY12 to be more inline with company’s expectation of 15% (though, we
model slightly higher at 18% revenue growth for FY12). We lower FY12 revenue by 7% from
Rs74.5bn to Rs69bn. However, we revise our margins upwards by ~30bp from 9.4% earlier to 9.7%
now on better visibility of project execution compared to H1FY11 (but are still on the lower side of
the company guidance range of 9.5%-10.5%). Net profit gets reduced effectively by 9%.
Maintain Buy with reduced target price of Rs113
IVRCL’s stock price has corrected by 34% over 1 month, 48% over 3 months and 55% over 6 months.
We believe concerns regarding the company were overblown and it is trading at attractive
valuations even considering conservative assumptions. The core EPC business of IVRCL
Infrastructure trades at FY12 P/E of 5x (adjusted for stake in listed subsidiary “IVRCL Asset & Holding”
and “Hindustan Dorr Oliver”). We have also revised our target P/E multiple from 13x to 10x for FY12
given that the order-book scenario in the sector has worsened. We believe the risk-reward of the
company provides an attractive entry point for investors after the undue correction and also looking
at the FY12 execution prospects. We value IVRCL Infra’s standalone business at Rs83 (10X on FY12
EPS of Rs8.3) and listed subsidiary at Rs31 totaling Rs113 providing an upside of 58% at the current
market price.
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