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UBS Investment Research
IVRCL
Q3FY11 results: Below expectations
Q3FY11: Revenues up 15% y/y, EBITDA margins at ~9.8%
Q3FY11 revenues were Rs14.2bn (+15% y/y, UBS-e Rs15.4bn), operating profit
was Rs1.4bn (+25% y/y) and PAT was Rs423m (-1% y/y, below UBS-e/consensus
estimate of Rs510m/477m). Q3 EBITDA margins were 9.8%, (+80bps y/y) in line
with UBS-e of 9.7% (Consensus 9.4%). The miss was led by lower execution (in
part due to the extended monsoons). 9mFY11 revenues and operating profit are
flat, while PAT is down 26% YoY, led by higher interest outgo.
Maintains FY11 revenue guidance of Rs62.5bn; expects margin of 9.5-10%
IVRCL maintained its FY11 revenue guidance of Rs62.5bn (UBS-e Rs60.4bn). We
estimate 15% revenue growth in FY12 with 9.5% EBITDA margins (at similar
levels as FY11E; 9mFY11- 9.3%). 9mFY11 order inflow was Rs75bn (including
L1) with order backlog (including L1) of Rs242bn (~3.5x FY12E revenues).
Revise estimates downward led by lower revenues and higher interest cost
W/cap levels have been maintained at Q2 levels (Rs20bn, excluding loans to subs
of Rs4.5bn) and debt (Rs22bn) has also remained at similar levels. Interest cost has
increased 21% QoQ led by increase in interest rates. We revise our EPS estimates
downwards to Rs7.2/8.1/9.7 from Rs7.6/9.7/12.2 for FY11/12/13E.
Valuation: Maintain Buy
Revision in our PT is led by long-term earnings revision/lower stock prices of
listed subs. We maintain Buy rating as we believe our assumptions are reasonable
(below/lower end of guidance) and valuations are compelling (standalone
construction business at ~5x FY12E P/E, excluding listed subs at 20% holdco
discount from current price).
The company targets to end the year with an order book of Rs240-250bn. It
plans to bid for projects over Rs200bn in next 6 months and expects to maintain
a strike rate of about 15-20%. BOT projects contribute Rs60bn in orders. 30% of
the total orders are from Maharashtra.
Road segment contributed Rs4.5bn to 9mFY11 revenues (Rs2.3bn in Q3). Its
contribution is expected to be about 17% over the next few years, with major
execution of road projects expected in FY13.
AP order book: Rs30bn of order-book is from AP. It did Rs1bn of revenues in
Q3 and Rs2.5bn in 9M FY11.
Key Balance Sheet Numbers: Net working capital at ~Rs20bn (excluding loans
to subsidiaries of Rs4.5bn; ~Rs19bn in Q2; Debtors are ~Rs19bn). The company
has gross debt of Rs22bn (~Rs23bn in Q2). It expects working capital levels to
decrease in the fourth quarter. Cash balance is around Rs750-800m.
Capex: 9M capex was Rs1.1bn.
Interest cost: Interest rate has increased to 10-10.5% in Q3 compared to 7-8%
same quarter last year.
Performance of Subsidiaries:
IVRCL Assets:
Funding requirement: Total equity requirement is Rs13.5bn, out of which
Rs4bn is already tied-up. Rs2.5bn is expected to be raised through CCDs in
the new BOT projects (the ones for which financial closure is pending). So
total equity required would be Rs7bn. It plans to sell minority stakes in
various SPVs - both operational and those under-construction/development.
Hence, IVRCL’s equity commitment is expected to be Rs3bn over the next
two-two and a half years (with the requirement not being high for next year).
Real estate sales are also expected to contribute to equity.
IVRCL does not plan to raise any equity funds in the group in this quarter. It
also does not expect the parent entity to make any equity investments in
IVRCL Assets and Holdings over the next two years (though it could extend
some short-term loans).
Sion-Panvel: Expects to achieve financial closure by Mar-11.
Goa Maharashtra: Expects to sign the concession agreement soon.
Under-construction projects: Baramati-Phaltan/Indore-
Jhabua/Chengapally-Walayar 25-30%/17%/7% construction completed in
terms of financial progress.
Operational projects: Toll collections on the three operational road BOTs is
2.5-2.7m/day for all.
Sriperumbudur Project: Should receive Rs300m over the next one year for
plot sales (this was recently launched; already received Rs50-60m). The
company is planning more plot sales in the first phase of the project. It has
received interest for its Bangalore and Noida land, though it has not decided
whether to go for joint development or outright sale.
Hindustan Dorr-Oliver Limited: The current order book is Rs13.1bn
(including L1) and it received orders of around Rs7.6bn in 9M including L1
orders of Rs3.5bn. Segmental distribution of order book is - Minerals is 40%,
Water is 32%, manufacturing is 15% and balance is others. The company has
pending bids for Rs60bn of projects and expects to get orders of around Rs7-8bn
in Q4.
IVRCL says that currently there are no plans for divestment of stake in HDO.
Davy Markham: The company expects £0.5m of losses in FY11.
IVRCL
Incorporated in 1987 as IVR Construction, IVRCL Infrastructures & Projects
has been in commercial operations since 1990, undertaking contracts to execute
civil engineering works. The company's main focus is on water, environment
and irrigation projects. It runs its real estate business through wholly owned
subsidiary, IVR Prime, and its BOT projects through two separate subsidiaries.
IVRCL execution of works includes townships, airport terminals, industrial
buildings, bridges, canals, roads, and tenements.
Statement of Risk
The company faces regulatory risk as the government is the largest client. It also
faces significant execution risks, some commodity price risk and interest rate
risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
IVRCL
Q3FY11 results: Below expectations
Q3FY11: Revenues up 15% y/y, EBITDA margins at ~9.8%
Q3FY11 revenues were Rs14.2bn (+15% y/y, UBS-e Rs15.4bn), operating profit
was Rs1.4bn (+25% y/y) and PAT was Rs423m (-1% y/y, below UBS-e/consensus
estimate of Rs510m/477m). Q3 EBITDA margins were 9.8%, (+80bps y/y) in line
with UBS-e of 9.7% (Consensus 9.4%). The miss was led by lower execution (in
part due to the extended monsoons). 9mFY11 revenues and operating profit are
flat, while PAT is down 26% YoY, led by higher interest outgo.
Maintains FY11 revenue guidance of Rs62.5bn; expects margin of 9.5-10%
IVRCL maintained its FY11 revenue guidance of Rs62.5bn (UBS-e Rs60.4bn). We
estimate 15% revenue growth in FY12 with 9.5% EBITDA margins (at similar
levels as FY11E; 9mFY11- 9.3%). 9mFY11 order inflow was Rs75bn (including
L1) with order backlog (including L1) of Rs242bn (~3.5x FY12E revenues).
Revise estimates downward led by lower revenues and higher interest cost
W/cap levels have been maintained at Q2 levels (Rs20bn, excluding loans to subs
of Rs4.5bn) and debt (Rs22bn) has also remained at similar levels. Interest cost has
increased 21% QoQ led by increase in interest rates. We revise our EPS estimates
downwards to Rs7.2/8.1/9.7 from Rs7.6/9.7/12.2 for FY11/12/13E.
Valuation: Maintain Buy
Revision in our PT is led by long-term earnings revision/lower stock prices of
listed subs. We maintain Buy rating as we believe our assumptions are reasonable
(below/lower end of guidance) and valuations are compelling (standalone
construction business at ~5x FY12E P/E, excluding listed subs at 20% holdco
discount from current price).
The company targets to end the year with an order book of Rs240-250bn. It
plans to bid for projects over Rs200bn in next 6 months and expects to maintain
a strike rate of about 15-20%. BOT projects contribute Rs60bn in orders. 30% of
the total orders are from Maharashtra.
Road segment contributed Rs4.5bn to 9mFY11 revenues (Rs2.3bn in Q3). Its
contribution is expected to be about 17% over the next few years, with major
execution of road projects expected in FY13.
AP order book: Rs30bn of order-book is from AP. It did Rs1bn of revenues in
Q3 and Rs2.5bn in 9M FY11.
Key Balance Sheet Numbers: Net working capital at ~Rs20bn (excluding loans
to subsidiaries of Rs4.5bn; ~Rs19bn in Q2; Debtors are ~Rs19bn). The company
has gross debt of Rs22bn (~Rs23bn in Q2). It expects working capital levels to
decrease in the fourth quarter. Cash balance is around Rs750-800m.
Capex: 9M capex was Rs1.1bn.
Interest cost: Interest rate has increased to 10-10.5% in Q3 compared to 7-8%
same quarter last year.
Performance of Subsidiaries:
IVRCL Assets:
Funding requirement: Total equity requirement is Rs13.5bn, out of which
Rs4bn is already tied-up. Rs2.5bn is expected to be raised through CCDs in
the new BOT projects (the ones for which financial closure is pending). So
total equity required would be Rs7bn. It plans to sell minority stakes in
various SPVs - both operational and those under-construction/development.
Hence, IVRCL’s equity commitment is expected to be Rs3bn over the next
two-two and a half years (with the requirement not being high for next year).
Real estate sales are also expected to contribute to equity.
IVRCL does not plan to raise any equity funds in the group in this quarter. It
also does not expect the parent entity to make any equity investments in
IVRCL Assets and Holdings over the next two years (though it could extend
some short-term loans).
Sion-Panvel: Expects to achieve financial closure by Mar-11.
Goa Maharashtra: Expects to sign the concession agreement soon.
Under-construction projects: Baramati-Phaltan/Indore-
Jhabua/Chengapally-Walayar 25-30%/17%/7% construction completed in
terms of financial progress.
Operational projects: Toll collections on the three operational road BOTs is
2.5-2.7m/day for all.
Sriperumbudur Project: Should receive Rs300m over the next one year for
plot sales (this was recently launched; already received Rs50-60m). The
company is planning more plot sales in the first phase of the project. It has
received interest for its Bangalore and Noida land, though it has not decided
whether to go for joint development or outright sale.
Hindustan Dorr-Oliver Limited: The current order book is Rs13.1bn
(including L1) and it received orders of around Rs7.6bn in 9M including L1
orders of Rs3.5bn. Segmental distribution of order book is - Minerals is 40%,
Water is 32%, manufacturing is 15% and balance is others. The company has
pending bids for Rs60bn of projects and expects to get orders of around Rs7-8bn
in Q4.
IVRCL says that currently there are no plans for divestment of stake in HDO.
Davy Markham: The company expects £0.5m of losses in FY11.
IVRCL
Incorporated in 1987 as IVR Construction, IVRCL Infrastructures & Projects
has been in commercial operations since 1990, undertaking contracts to execute
civil engineering works. The company's main focus is on water, environment
and irrigation projects. It runs its real estate business through wholly owned
subsidiary, IVR Prime, and its BOT projects through two separate subsidiaries.
IVRCL execution of works includes townships, airport terminals, industrial
buildings, bridges, canals, roads, and tenements.
Statement of Risk
The company faces regulatory risk as the government is the largest client. It also
faces significant execution risks, some commodity price risk and interest rate
risk.
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