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IVRCL INFRASTRUCTURE
Results reinforce confidence at current valuations
Execution picks up, as expected; interest costs hurt
Following a 5% Y-o-Y decline in turnover in H1FY11, execution picked up in
Q3FY11 as expected for IVRCL Infrastructure (IVRCL), with turnover of INR 14.2
bn, up 32% Q-o-Q and 20% Y-o-Y. Despite this, PAT at ~INR 423 mn (in line)
dipped 8% Y-o-Y due to 61% Y-o-Y jump in interest costs. Interest costs soared
Q-o-Q as well (23%) due to hardening interest rates, although debt at INR 22 bn
and net working capital remained unchanged.
Management guides for a strong Q4FY11
Management sounded confident of achieving FY11 turnover guidance of
INR 62.5 bn, which implies a 40% Y-o-Y growth in Q4FY11 turnover. We have
built in a turnover of INR 57.7 bn, implying 15% Y-o-Y growth in Q4FY11. We
are keeping our estimates unchanged for now, but do anticipate upside risks to
the same.
Strong order book; Andhra increasingly becoming insignificant
IVRCL’s order book currently stands at ~INR 240 bn (including L1 projects of
~INR 20 bn). This translates into an order book/revenue ratio of ~4.4x TTM
revenues (against average of ~3x in FY04-09) and provides strong revenue
visibility. It expects to end the year with an order book of INR 240-260 bn. Of
the total order book, Andhra Pradesh (AP) projects now contribute only ~INR 30
bn (12.5%). Revenue contribution from Andhra was even lower at 7% in Q3FY11
while receivables stood at INR 510 mn (~2.5%).
Significant progress expected in BOT projects
During Q3FY11, IVRCL signed the concession agreement for the long pending
Sion-Panvel project; financial closure is expected shortly. The Goa-Maharashtra
and Chandrapur projects are pending financial closure. For Goa-Maharashtra,
concession agreement is expected to be signed in a week’s time. IVR Assets
needs to put in ~INR 7 bn as equity in various BOT projects over the next year
which could be raised via stake sale in individual SPVs and realty sales.
Outlook and valuations: Attractive; maintain ‘BUY’
Post 50% fall in the stock price over the past three months, the core
construction business is now available at 6.5x FY11E P/E, similar to levels during
the 2008 crash. We have valued IVRCL on SOTP at INR 100/share, consisting of
construction business’ INR 64/share at 10x FY12E EPS, IVR assets at INR
25/share, and Hindustan Dorr Oliver at INR 11/share based on current market
cap. We maintain ‘BUY’ on the stock and rate it ‘Sector Performer’.
Order book break up
Water segment continues to dominate the order book, contributing ~50%; buildings
accounted for 20%, roads 15%, power 10%, with the balance coming from oil & gas.
Revenue break up
Water segment continues to dominate the top line, contributing ~46%; buildings
accounted for 21%, roads 11%, oil & gas 16%, with the balance coming from power.
Progress in BOT projects
IVRCL’s initial four BOT projects are now complete and are generating revenues. The
company has already achieved financial closure (FC) on Chengapalli-Walayar, Indore-
Jhabua and Baramati-Phaltan projects and work has commenced on these projects. The
Baramati-Phaltan project is 25% complete, Indore-Gujarat is 17% complete and the
Chengapalli-Walayar project is 7% complete.
The company’s asset ownership subsidiary, IVR Assets, needs to put in ~INR 13.5 bn as
equity in various BOT projects over the next couple of years. It has already raised INR
2.5 bn from IFCI in the form of Compulsorily Convertible Debentures (CCD) and INR 1.5
bn through the PE route. Land sale and stake sale in individual SPVs are some of the
options available to the company to raise the balance funds.
Company Description
IVRCL operates in the water and environment sectors, roads and bridges, buildings and
industrial structures, and power and transmission sectors, and is a leading player in EPC
contract implementation. Over the years, it has steadily emerged as the leader in the
water and environment sectors and has undertaken projects on EPC and lump sum
turnkey (LSTK) basis with front-end engineering capabilities in this segment. It has also
entered the real estate development space through its subsidiary IVR Prime. The
company has also ventured into the asset ownership space by bagging projects in the
roads, water desalination and the oil and gas space.
Investment Theme
IVRCL is the leader in water segment, where it has moved from being a pure contractor
to developing BOT projects. With its socio-political significance, this segment is likely to
be the among the priority issues for any government in India, though extent of project
award will depend upon public sector finances which are getting stressed. IVRCL has
tried to broad base its offerings through various acquisitions and asset ownership. It has
acquired HDO (to augment its design and engineering capabilities in the water segment)
and Alkor Petroo (to get pre-qualified for providing services in oil and gas segments).
Key Risks
More than 40% of the company’s order book comes from the water sector, which raises
concentration risk. The absence of private sector investments in this sector means that
order inflow will continue to depend upon state government finances. Also, the company
has plans to build a sizeable asset ownership portfolio which would require substantial
equity infusion going ahead.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IVRCL INFRASTRUCTURE
Results reinforce confidence at current valuations
Execution picks up, as expected; interest costs hurt
Following a 5% Y-o-Y decline in turnover in H1FY11, execution picked up in
Q3FY11 as expected for IVRCL Infrastructure (IVRCL), with turnover of INR 14.2
bn, up 32% Q-o-Q and 20% Y-o-Y. Despite this, PAT at ~INR 423 mn (in line)
dipped 8% Y-o-Y due to 61% Y-o-Y jump in interest costs. Interest costs soared
Q-o-Q as well (23%) due to hardening interest rates, although debt at INR 22 bn
and net working capital remained unchanged.
Management guides for a strong Q4FY11
Management sounded confident of achieving FY11 turnover guidance of
INR 62.5 bn, which implies a 40% Y-o-Y growth in Q4FY11 turnover. We have
built in a turnover of INR 57.7 bn, implying 15% Y-o-Y growth in Q4FY11. We
are keeping our estimates unchanged for now, but do anticipate upside risks to
the same.
Strong order book; Andhra increasingly becoming insignificant
IVRCL’s order book currently stands at ~INR 240 bn (including L1 projects of
~INR 20 bn). This translates into an order book/revenue ratio of ~4.4x TTM
revenues (against average of ~3x in FY04-09) and provides strong revenue
visibility. It expects to end the year with an order book of INR 240-260 bn. Of
the total order book, Andhra Pradesh (AP) projects now contribute only ~INR 30
bn (12.5%). Revenue contribution from Andhra was even lower at 7% in Q3FY11
while receivables stood at INR 510 mn (~2.5%).
Significant progress expected in BOT projects
During Q3FY11, IVRCL signed the concession agreement for the long pending
Sion-Panvel project; financial closure is expected shortly. The Goa-Maharashtra
and Chandrapur projects are pending financial closure. For Goa-Maharashtra,
concession agreement is expected to be signed in a week’s time. IVR Assets
needs to put in ~INR 7 bn as equity in various BOT projects over the next year
which could be raised via stake sale in individual SPVs and realty sales.
Outlook and valuations: Attractive; maintain ‘BUY’
Post 50% fall in the stock price over the past three months, the core
construction business is now available at 6.5x FY11E P/E, similar to levels during
the 2008 crash. We have valued IVRCL on SOTP at INR 100/share, consisting of
construction business’ INR 64/share at 10x FY12E EPS, IVR assets at INR
25/share, and Hindustan Dorr Oliver at INR 11/share based on current market
cap. We maintain ‘BUY’ on the stock and rate it ‘Sector Performer’.
Order book break up
Water segment continues to dominate the order book, contributing ~50%; buildings
accounted for 20%, roads 15%, power 10%, with the balance coming from oil & gas.
Revenue break up
Water segment continues to dominate the top line, contributing ~46%; buildings
accounted for 21%, roads 11%, oil & gas 16%, with the balance coming from power.
Progress in BOT projects
IVRCL’s initial four BOT projects are now complete and are generating revenues. The
company has already achieved financial closure (FC) on Chengapalli-Walayar, Indore-
Jhabua and Baramati-Phaltan projects and work has commenced on these projects. The
Baramati-Phaltan project is 25% complete, Indore-Gujarat is 17% complete and the
Chengapalli-Walayar project is 7% complete.
The company’s asset ownership subsidiary, IVR Assets, needs to put in ~INR 13.5 bn as
equity in various BOT projects over the next couple of years. It has already raised INR
2.5 bn from IFCI in the form of Compulsorily Convertible Debentures (CCD) and INR 1.5
bn through the PE route. Land sale and stake sale in individual SPVs are some of the
options available to the company to raise the balance funds.
Company Description
IVRCL operates in the water and environment sectors, roads and bridges, buildings and
industrial structures, and power and transmission sectors, and is a leading player in EPC
contract implementation. Over the years, it has steadily emerged as the leader in the
water and environment sectors and has undertaken projects on EPC and lump sum
turnkey (LSTK) basis with front-end engineering capabilities in this segment. It has also
entered the real estate development space through its subsidiary IVR Prime. The
company has also ventured into the asset ownership space by bagging projects in the
roads, water desalination and the oil and gas space.
Investment Theme
IVRCL is the leader in water segment, where it has moved from being a pure contractor
to developing BOT projects. With its socio-political significance, this segment is likely to
be the among the priority issues for any government in India, though extent of project
award will depend upon public sector finances which are getting stressed. IVRCL has
tried to broad base its offerings through various acquisitions and asset ownership. It has
acquired HDO (to augment its design and engineering capabilities in the water segment)
and Alkor Petroo (to get pre-qualified for providing services in oil and gas segments).
Key Risks
More than 40% of the company’s order book comes from the water sector, which raises
concentration risk. The absence of private sector investments in this sector means that
order inflow will continue to depend upon state government finances. Also, the company
has plans to build a sizeable asset ownership portfolio which would require substantial
equity infusion going ahead.
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