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IVRCL (IVRC)
Construction
Revenue and EBITDA gains nullified by interest cost and depreciation. IVRCL
delivered reasonable revenues growth of 15% yoy in 3QFY11, however, higher interest
cost and depreciation led to flat PAT yoy. The management reduced FY2011 revenue
guidance to Rs62.5 bn (may still be aggressive as we build Rs58.2 bn). Debt and
working capital remain stable on a qoq basis, a partial tie up of equity for BOT assets
may help push execution as concession agreement, land, financial closure make
progress. Retain BUY as stock trades at 4X FY2012E P/E adj. for equity holdings
Reasonable revenue growth nullified by higher interest cost and depreciation
IVRCL reported revenues of Rs14.2 bn (up 15% yoy) and EBITDA margins of 9.9% (up 90 bps yoy)
led by lower raw material cost as a percentage of sales. The net profit line disappointed though,
led by higher interest cost of Rs592 mn (vs Rs372 mn last year and Rs480 mn in 2QFY11) and
depreciation cost of Rs199 mn (up 43% yoy) led to flat PAT of Rs423 mn. For 9MFY11, revenues
are Rs36 bn and EBITDA margin at 9.3% are flat yoy with higher interest cost and depreciation
increase leading to decline in PAT of 26%.
Revises full year guidance of Rs62.5 bn; we build in full year revenues of Rs58.2 bn
The management reduced the FY11 revenues guidance to Rs62.5 bn. The present guidance still
implies a strong growth of 35% in the last quarter. We believe this would be difficult to achieve
and have built in FY2011E revenues of Rs58.2 bn, implying yoy revenue growth of 18% in 4QFY11.
Equity for BOTs partly tied up—may scale up execution; IVRCL parent not to invest directly
Present portfolio of IVRCL Assets BOT projects requires incremental equity of about Rs13.5 bn.
Funds up to Rs6.5 bn are already tied up through (1) issue of compulsorily convertible debentures
of Rs2.5 bn to IFCI (2) Rs1.5 bn investment from UTI and (3) Rs2.5 bn NCDs. The rest are to be
funded from the stake sale of existing and upcoming BOT projects, land sales as well as equity
dilution in IVR Prime. IVRCL Infra. as a parent entity is not likely to invest in IVR Prime to fund the
equity of BOT projects.
Revise est. on back of higher interest cost; retain BUY on valuation, visibility and likely pick up
We have revised our FY2011E, FY2012E and FY2013E estimate to Rs7 (Rs7.7 earlier), Rs8.9
(Rs10.3 earlier) and Rs12.6 (Rs15.7) primarily based on higher interest cost versus earlier estimates.
We have revised our target price to Rs125 from Rs190 earlier based on (1) using 10X multiple now
versus 13X earlier, (2) lower valuation of listed subsidiaries (Rs20 impact) and (c) reduction in
earnings estimates. We retain our BUY rating as (1) execution of road projects may pick up as a
part of equity gets tied up, and agreements and financial closures are completed, (2) attractive
valuation – 4X FY2012E P/E adjusted for equity holdings in IVR Prime and HDO, (3) order book
visibility.
Result disappoint on interest cost and depreciation
IVRCL reported revenues of Rs14.2 bn, up 15% yoy. The company reported EBITDA margin
of 9.9%, up 90 bps yoy (9.0% in 3QFY10) and marginally better than our estimates of 9.5%.
The margin expansion was led by lower raw material cost as a percentage of sales. The
revenue and margin gains resulted in 26% yoy EBITDA growth to Rs1404 mn. IVRCL
disappointed on interest cost and depreciation leading to a net PAT of Rs433 mn, down 1%
yoy and 3.3% below our estimate of Rs437 mn. Interest cost increased 59% yoy to Rs592
mn due to the interest rate increase. Depreciation also increased significantly by 43% to
Rs199 mn.
For the nine months ending December 31, 2010, IVRCL reported flat revenues of Rs36 bn
and EBITDA of Rs3.36 bn. As in 3QFY11, the company disappointed on below EBITDA line
items leading to 9MFY11 net PAT contraction of 26% to Rs937 mn.
Road projects execution slow as some projects may be just getting ready for
execution now
The slowdown in execution of the roads segment projects is reflected in the revenue
contribution of this segment (transportation segment) of 12% of the total 9MFY11 revenues
versus a backlog contribution of about 27%. We believe water resources and irrigation
segments have contributed their fair share to the revenues (equal revenue and backlog
contribution) while the buildings segment has recorded a strong revenue contribution of
about 24% versus a backlog contribution of 19%.
Recently signed concession agreements for two BOT projects; Goa still remaining
The company has signed concession agreements for two of the three recent BOT project
wins viz. (1) Rs15 bn Sion-Panvel expressway (won in Sept-2010-– financial closure likely to
happen soon) and (2) Rs7.5 bn Karanji-Wani-Ghuggus-Chandrapur road (won in Sept-2010
– financial closure likely to happen soon). The Rs31 bn Maharashtra-Goa project (won in
June-2010) is still awaiting concession agreement and financial closure.
Construction work has begun on several financially closed BOT projects including Baramati-
Phaltan, Chengapalli- Walayar and Indore-Gujarat.
Order inflows just keeping pace; current backlog and its execution holds the key
The company reported an order backlog of Rs242 bn at end- 3QFY11 leading to an order
booking of about Rs16 bn in this quarter. The order backlog provides a revenue visibility of
about 3.4 years based on forward four quarter revenues.
Reduced full-year revenue guidance of Rs62.5 bn requires strong growth in 4Q
The management reduced the FY11 revenues guidance to Rs62.5 bn vs. earlier guidance of
Rs67.5-71 bn. The present guidance still implies 4QFY11 revenue of Rs26.5 bn and a strong
yoy growth of 35.6%. We highlight that the company had booked revenues of Rs18.9 in
4QFY10 – which was the strongest quarter in the year.
We have built in revenues of Rs58.2 bn implying 17% yoy growth in 4QFY11E. Our full-year
margin assumption of 9.5% implies an EBITDA margin requirement of 9.8% in 4QFY11E –
relatively flat on a yoy basis. Full-year PAT of Rs2 bn implies a net PAT of Rs930 mn in
4QFY11E versus Rs850 mn in 4QFY10.
Needs Rs13.5 bn of equity funding for road projects; may sell equity stake in
BOT projects
Present portfolio of IVRCL Assets BOT projects requires incremental equity of about Rs13.5
bn. Delays/difficulties in raising this equity would potentially lead to lower construction
revenues and/or may put stress on the standalone balance sheet. Funds up to Rs6.5 bn are
already tied up through (1) issue of compulsorily convertible debentures of Rs2.5 bn to IFCI
and (2) investment from UTI for about Rs1.5 bn and (3) issue of NCDs for a total of about
Rs2.5 bn. The rest are to be funded from stake sale of existing and upcoming BOT projects,
land sales etc. IVRCL Infrastructure as a parent entity is not envisaged to invest in equity of
BOT projects help in IVR Prime.
Debt and working capital remain stable on a qoq basis
IVRCL management indicated net debt at end-Dec 2010 of about Rs22 bn versus Rs21.2 bn
at end-Sept 2010 and Rs15.5 bn at FY2010-end level. The increase in debt levels was
primarily due to higher loans & advances to subsidiaries for investment in the BOT assets.
Loans and advances towards subsidiaries stood at about Rs4.5 bn versus end-FY2010 level
of about Rs2.8 bn. We have built in debt levels of about Rs23 bn at end-FY2011E.
Revise earnings estimates and target price to Rs125/share; retain BUY
We have revised our FY2011E, FY2012E and FY2013E estimate to Rs7 (Rs7.7 earlier), Rs8.9
(Rs10.3 earlier) and Rs12.6 (Rs15.7) earlier primarily based on higher interest cost versus
earlier estimates. We have revised our target price to Rs125 from Rs190 earlier based on (1)
using 10X multiple now versus 13X earlier (Rs30 impact on the target price), (2) lower
valuation of listed subsidiaries – IVR Prime and Hindustan Dorr Oliver (Rs20 impact on the
target price) and (3) reduction in earnings estimates (Rs20 impact on the target price).
We retain BUY as (1) execution of road projects may pick up as part of equity gets tied up,
and agreements and financial closures are completed, (2) attractive valuation – 4X FY2012E
P/E adjusted for equity holdings in IVR Prime and HDO, (3) order book visibility.
We correspondingly revise our SOTP-based target price to Rs125/share from Rs190/share.
Our target price of Rs125/share is comprised of (1) Rs90/share from the core construction
business based on 10XFY2012E earnings, (2) IVRCL Assets’ contribution of Rs26/share, and
(3) Rs10/share contribution from Hindustan Dorr Oliver.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IVRCL (IVRC)
Construction
Revenue and EBITDA gains nullified by interest cost and depreciation. IVRCL
delivered reasonable revenues growth of 15% yoy in 3QFY11, however, higher interest
cost and depreciation led to flat PAT yoy. The management reduced FY2011 revenue
guidance to Rs62.5 bn (may still be aggressive as we build Rs58.2 bn). Debt and
working capital remain stable on a qoq basis, a partial tie up of equity for BOT assets
may help push execution as concession agreement, land, financial closure make
progress. Retain BUY as stock trades at 4X FY2012E P/E adj. for equity holdings
Reasonable revenue growth nullified by higher interest cost and depreciation
IVRCL reported revenues of Rs14.2 bn (up 15% yoy) and EBITDA margins of 9.9% (up 90 bps yoy)
led by lower raw material cost as a percentage of sales. The net profit line disappointed though,
led by higher interest cost of Rs592 mn (vs Rs372 mn last year and Rs480 mn in 2QFY11) and
depreciation cost of Rs199 mn (up 43% yoy) led to flat PAT of Rs423 mn. For 9MFY11, revenues
are Rs36 bn and EBITDA margin at 9.3% are flat yoy with higher interest cost and depreciation
increase leading to decline in PAT of 26%.
Revises full year guidance of Rs62.5 bn; we build in full year revenues of Rs58.2 bn
The management reduced the FY11 revenues guidance to Rs62.5 bn. The present guidance still
implies a strong growth of 35% in the last quarter. We believe this would be difficult to achieve
and have built in FY2011E revenues of Rs58.2 bn, implying yoy revenue growth of 18% in 4QFY11.
Equity for BOTs partly tied up—may scale up execution; IVRCL parent not to invest directly
Present portfolio of IVRCL Assets BOT projects requires incremental equity of about Rs13.5 bn.
Funds up to Rs6.5 bn are already tied up through (1) issue of compulsorily convertible debentures
of Rs2.5 bn to IFCI (2) Rs1.5 bn investment from UTI and (3) Rs2.5 bn NCDs. The rest are to be
funded from the stake sale of existing and upcoming BOT projects, land sales as well as equity
dilution in IVR Prime. IVRCL Infra. as a parent entity is not likely to invest in IVR Prime to fund the
equity of BOT projects.
Revise est. on back of higher interest cost; retain BUY on valuation, visibility and likely pick up
We have revised our FY2011E, FY2012E and FY2013E estimate to Rs7 (Rs7.7 earlier), Rs8.9
(Rs10.3 earlier) and Rs12.6 (Rs15.7) primarily based on higher interest cost versus earlier estimates.
We have revised our target price to Rs125 from Rs190 earlier based on (1) using 10X multiple now
versus 13X earlier, (2) lower valuation of listed subsidiaries (Rs20 impact) and (c) reduction in
earnings estimates. We retain our BUY rating as (1) execution of road projects may pick up as a
part of equity gets tied up, and agreements and financial closures are completed, (2) attractive
valuation – 4X FY2012E P/E adjusted for equity holdings in IVR Prime and HDO, (3) order book
visibility.
Result disappoint on interest cost and depreciation
IVRCL reported revenues of Rs14.2 bn, up 15% yoy. The company reported EBITDA margin
of 9.9%, up 90 bps yoy (9.0% in 3QFY10) and marginally better than our estimates of 9.5%.
The margin expansion was led by lower raw material cost as a percentage of sales. The
revenue and margin gains resulted in 26% yoy EBITDA growth to Rs1404 mn. IVRCL
disappointed on interest cost and depreciation leading to a net PAT of Rs433 mn, down 1%
yoy and 3.3% below our estimate of Rs437 mn. Interest cost increased 59% yoy to Rs592
mn due to the interest rate increase. Depreciation also increased significantly by 43% to
Rs199 mn.
For the nine months ending December 31, 2010, IVRCL reported flat revenues of Rs36 bn
and EBITDA of Rs3.36 bn. As in 3QFY11, the company disappointed on below EBITDA line
items leading to 9MFY11 net PAT contraction of 26% to Rs937 mn.
Road projects execution slow as some projects may be just getting ready for
execution now
The slowdown in execution of the roads segment projects is reflected in the revenue
contribution of this segment (transportation segment) of 12% of the total 9MFY11 revenues
versus a backlog contribution of about 27%. We believe water resources and irrigation
segments have contributed their fair share to the revenues (equal revenue and backlog
contribution) while the buildings segment has recorded a strong revenue contribution of
about 24% versus a backlog contribution of 19%.
Recently signed concession agreements for two BOT projects; Goa still remaining
The company has signed concession agreements for two of the three recent BOT project
wins viz. (1) Rs15 bn Sion-Panvel expressway (won in Sept-2010-– financial closure likely to
happen soon) and (2) Rs7.5 bn Karanji-Wani-Ghuggus-Chandrapur road (won in Sept-2010
– financial closure likely to happen soon). The Rs31 bn Maharashtra-Goa project (won in
June-2010) is still awaiting concession agreement and financial closure.
Construction work has begun on several financially closed BOT projects including Baramati-
Phaltan, Chengapalli- Walayar and Indore-Gujarat.
Order inflows just keeping pace; current backlog and its execution holds the key
The company reported an order backlog of Rs242 bn at end- 3QFY11 leading to an order
booking of about Rs16 bn in this quarter. The order backlog provides a revenue visibility of
about 3.4 years based on forward four quarter revenues.
Reduced full-year revenue guidance of Rs62.5 bn requires strong growth in 4Q
The management reduced the FY11 revenues guidance to Rs62.5 bn vs. earlier guidance of
Rs67.5-71 bn. The present guidance still implies 4QFY11 revenue of Rs26.5 bn and a strong
yoy growth of 35.6%. We highlight that the company had booked revenues of Rs18.9 in
4QFY10 – which was the strongest quarter in the year.
We have built in revenues of Rs58.2 bn implying 17% yoy growth in 4QFY11E. Our full-year
margin assumption of 9.5% implies an EBITDA margin requirement of 9.8% in 4QFY11E –
relatively flat on a yoy basis. Full-year PAT of Rs2 bn implies a net PAT of Rs930 mn in
4QFY11E versus Rs850 mn in 4QFY10.
Needs Rs13.5 bn of equity funding for road projects; may sell equity stake in
BOT projects
Present portfolio of IVRCL Assets BOT projects requires incremental equity of about Rs13.5
bn. Delays/difficulties in raising this equity would potentially lead to lower construction
revenues and/or may put stress on the standalone balance sheet. Funds up to Rs6.5 bn are
already tied up through (1) issue of compulsorily convertible debentures of Rs2.5 bn to IFCI
and (2) investment from UTI for about Rs1.5 bn and (3) issue of NCDs for a total of about
Rs2.5 bn. The rest are to be funded from stake sale of existing and upcoming BOT projects,
land sales etc. IVRCL Infrastructure as a parent entity is not envisaged to invest in equity of
BOT projects help in IVR Prime.
Debt and working capital remain stable on a qoq basis
IVRCL management indicated net debt at end-Dec 2010 of about Rs22 bn versus Rs21.2 bn
at end-Sept 2010 and Rs15.5 bn at FY2010-end level. The increase in debt levels was
primarily due to higher loans & advances to subsidiaries for investment in the BOT assets.
Loans and advances towards subsidiaries stood at about Rs4.5 bn versus end-FY2010 level
of about Rs2.8 bn. We have built in debt levels of about Rs23 bn at end-FY2011E.
Revise earnings estimates and target price to Rs125/share; retain BUY
We have revised our FY2011E, FY2012E and FY2013E estimate to Rs7 (Rs7.7 earlier), Rs8.9
(Rs10.3 earlier) and Rs12.6 (Rs15.7) earlier primarily based on higher interest cost versus
earlier estimates. We have revised our target price to Rs125 from Rs190 earlier based on (1)
using 10X multiple now versus 13X earlier (Rs30 impact on the target price), (2) lower
valuation of listed subsidiaries – IVR Prime and Hindustan Dorr Oliver (Rs20 impact on the
target price) and (3) reduction in earnings estimates (Rs20 impact on the target price).
We retain BUY as (1) execution of road projects may pick up as part of equity gets tied up,
and agreements and financial closures are completed, (2) attractive valuation – 4X FY2012E
P/E adjusted for equity holdings in IVR Prime and HDO, (3) order book visibility.
We correspondingly revise our SOTP-based target price to Rs125/share from Rs190/share.
Our target price of Rs125/share is comprised of (1) Rs90/share from the core construction
business based on 10XFY2012E earnings, (2) IVRCL Assets’ contribution of Rs26/share, and
(3) Rs10/share contribution from Hindustan Dorr Oliver.
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