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India Equity Research Reports, IPO and Stock News
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Expect better Q4 vs 9MFY11; but orderintake
disappoints
Our construction sector coverage stocks have
underperformed the respective benchmark indices by
14% and 27% over 3M and 6M, respectively (see exhibit
7). Concerns on various issues like environmental
clearances, increasing working capital investments and
order-intake drying up led to this de-rating. Though
9MFY11 revenue was below expectations/guidance, we
believe Q4 should provide relief as it is a seasonally
strong quarter. We expect our coverage universe to
deliver 20% YoY revenue growth, 23% EBITDA growth
(12% margin expansion) and 20% PAT increase. Our
universe companies have bagged orders worth Rs19bn
in Q4 (see Exhibit 7). We are positive on the sector given
long-term infra opportunity and view that order-book
momentum would accelerate on road projects and postelections
in several states. We believe in current
scenario, CCCL provides a better risk-reward.
�� 9MFY11 disappoints; but Q4 should be better: We
expect our construction universe to clock 20% YoY
revenue growth in Q4. Q4 revenue is expected to
contribute 34% of FY11 revenue. We believe this is
achievable as Q4 is a seasonally strong quarter and the
lower-than-expected 9MFY11 performance that
resulted in higher execution backlog gives comfort.
�� However, order-intake disappointed: Order-intake
for the sector was a huge disappointment in Q4.
Elections, scams, delayed decision-making by clients,
increasing interest rates, etc, have contributed to this
scenario. We believe this would have an impact on
FY12 estimates. We would revisit our numbers post the
Q4 results as we wait for further clarity.
�� Stocks hammered, but stabilised in past 1month:
Construction stocks got de-rated as the Q2 and Q3
results were not so impressive to demand a change in
stance from investors (6M decline of 27% in stock
performance). However, stocks are trading at
reasonable value and have stabilized to some extent in
past 1month.
�� Maintain positive stance on the sector, CCCL toppick:
We maintain our positive stance on the sector on
infra oppty and valuation. We believe, at CMP CCCL
provides better risk-reward vs peers.
IVRCL Infrastructures & Projects (Buy; Target Price: Rs138)
�� Though the management in its Q2FY11 conference call lowered FY11 revenue guidance from
Rs65bn to Rs62bn (down by 5%), we believe that new guidance is also at risk. We have modeled
in Rs58.4bn revenue (up 6% YoY) vs street’s estimate Rs60bn for FY11. Though current orderbook
looks comfortable, new order-intake has been dismal during 2HFY11. We would wait for
update on financial closure of road projects on IVRCL Asset & Holdings and its execution status.
�� We estimate 10.2% operating margin vs street’s 9.6% as better revenue reaps benefits of
operating leverage. For FY11, we expect operating margin at 9.4% (vs street’s 9.3%). Our PAT
estimates for Q4FY11 and FY11 are Rs1bn and Rs1,939mn, respectively, vs street’s forecasts of
Rs963mn and Rs1,945mn.
Nagarjuna Construction Company (Buy; Target Price: Rs150)
�� Order-flow outlook is expected to be strong with power orders alone expected to bring in
Rs80bn in the next 6months (including internal power project’s EPC of Rs50bn of which
financial closure is expected to be done in May’11).
�� Start of the year guidance of Rs73bn (consolidated) and Rs58bn (standalone) revenue for FY11
given by the management has been lowered on various issues such as better monsoon in Q2
and Q3, delays in client payment impacting execution and issues on regulatory clearances.
�� We expect Q4FY11 standalone revenue at Rs18.4bn, 6% higher than the street’s estimate of
Rs17.3bn. Our EBITDA margin expectation is lower at 9.7% vs street’s 10.1% and in-line with
management’s guidance. Our net profit estimate is Rs714mn vs street’s Rs685mn, higher by 4%.
Hindustan Construction Company (Buy; Target Price: Rs54)
�� Order-intake for the company was muted during Q3FY11. During Q4, the company bagged few
minor orders. Over and above that, management’s attention was diverted on account of issues
in Lavasa.
�� We expect 26% YoY revenue growth in Q4FY11 to Rs12.6bn (vs the street’s Rs12.5bn). Our
estimates are inline with street on revenue and EBITDA margins at 12.8%. Our PAT estimate at
Rs381mn is 29% below street’s Rs295mn.
Era Infra Engineering (Hold; Target Price: Rs209)
�� We downgraded the stock after Q3FY11 results as order-intake was below expectations and the
stock price outperformed peers. During Q4FY11, no major orders were announced and we
would wait for things to improve on its order-book which stands at around 2.5X FY11 revenue.
�� We expect Q4FY11 revenue of Rs12.9bn (up 32% YoY, 27% QoQ), EBITDA at Rs2.5bn (up 26%
YoY and 33% QoQ) and margin at 19%. PAT is expected to be Rs922mn (up 48% YoY, 58% QoQ).
Consolidated Construction Consortium (Buy; Target Price: Rs66)
�� We expect Q4FY11 standalone revenue at Rs7.3bn (up 14% YoY and 46% QoQ). EBITDA is
expected at Rs784mn (up 8.3% YoY and 62% QoQ) and EBIDTA margin at 10.8%.
�� CCCL’s stock price has remained in the range of Rs50-Rs55. We believe these levels present a
good entry point for investors as the risk-reward ratio has improved and within our coverage
universe provides the best risk-reward profile.
Ahluwalia Contracts (Buy; Target Price: Rs173)
�� ACIL revised its FY11 revenue guidance for FY11 from Rs20bn to Rs17bn post its Q3 results. This
is mainly on account of issues in real-estate segment clients (contributing around 50% of total
order book).
�� For Q4FY11, we expect revenue of Rs5bn, growth of just 5% YoY and 33% QoQ, EBITDA at
Rs557mn (margins of 11%) and PAT of Rs271mn (growth of 96.9% YoY and 91% QoQ).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Expect better Q4 vs 9MFY11; but orderintake
disappoints
Our construction sector coverage stocks have
underperformed the respective benchmark indices by
14% and 27% over 3M and 6M, respectively (see exhibit
7). Concerns on various issues like environmental
clearances, increasing working capital investments and
order-intake drying up led to this de-rating. Though
9MFY11 revenue was below expectations/guidance, we
believe Q4 should provide relief as it is a seasonally
strong quarter. We expect our coverage universe to
deliver 20% YoY revenue growth, 23% EBITDA growth
(12% margin expansion) and 20% PAT increase. Our
universe companies have bagged orders worth Rs19bn
in Q4 (see Exhibit 7). We are positive on the sector given
long-term infra opportunity and view that order-book
momentum would accelerate on road projects and postelections
in several states. We believe in current
scenario, CCCL provides a better risk-reward.
�� 9MFY11 disappoints; but Q4 should be better: We
expect our construction universe to clock 20% YoY
revenue growth in Q4. Q4 revenue is expected to
contribute 34% of FY11 revenue. We believe this is
achievable as Q4 is a seasonally strong quarter and the
lower-than-expected 9MFY11 performance that
resulted in higher execution backlog gives comfort.
�� However, order-intake disappointed: Order-intake
for the sector was a huge disappointment in Q4.
Elections, scams, delayed decision-making by clients,
increasing interest rates, etc, have contributed to this
scenario. We believe this would have an impact on
FY12 estimates. We would revisit our numbers post the
Q4 results as we wait for further clarity.
�� Stocks hammered, but stabilised in past 1month:
Construction stocks got de-rated as the Q2 and Q3
results were not so impressive to demand a change in
stance from investors (6M decline of 27% in stock
performance). However, stocks are trading at
reasonable value and have stabilized to some extent in
past 1month.
�� Maintain positive stance on the sector, CCCL toppick:
We maintain our positive stance on the sector on
infra oppty and valuation. We believe, at CMP CCCL
provides better risk-reward vs peers.
IVRCL Infrastructures & Projects (Buy; Target Price: Rs138)
�� Though the management in its Q2FY11 conference call lowered FY11 revenue guidance from
Rs65bn to Rs62bn (down by 5%), we believe that new guidance is also at risk. We have modeled
in Rs58.4bn revenue (up 6% YoY) vs street’s estimate Rs60bn for FY11. Though current orderbook
looks comfortable, new order-intake has been dismal during 2HFY11. We would wait for
update on financial closure of road projects on IVRCL Asset & Holdings and its execution status.
�� We estimate 10.2% operating margin vs street’s 9.6% as better revenue reaps benefits of
operating leverage. For FY11, we expect operating margin at 9.4% (vs street’s 9.3%). Our PAT
estimates for Q4FY11 and FY11 are Rs1bn and Rs1,939mn, respectively, vs street’s forecasts of
Rs963mn and Rs1,945mn.
Nagarjuna Construction Company (Buy; Target Price: Rs150)
�� Order-flow outlook is expected to be strong with power orders alone expected to bring in
Rs80bn in the next 6months (including internal power project’s EPC of Rs50bn of which
financial closure is expected to be done in May’11).
�� Start of the year guidance of Rs73bn (consolidated) and Rs58bn (standalone) revenue for FY11
given by the management has been lowered on various issues such as better monsoon in Q2
and Q3, delays in client payment impacting execution and issues on regulatory clearances.
�� We expect Q4FY11 standalone revenue at Rs18.4bn, 6% higher than the street’s estimate of
Rs17.3bn. Our EBITDA margin expectation is lower at 9.7% vs street’s 10.1% and in-line with
management’s guidance. Our net profit estimate is Rs714mn vs street’s Rs685mn, higher by 4%.
Hindustan Construction Company (Buy; Target Price: Rs54)
�� Order-intake for the company was muted during Q3FY11. During Q4, the company bagged few
minor orders. Over and above that, management’s attention was diverted on account of issues
in Lavasa.
�� We expect 26% YoY revenue growth in Q4FY11 to Rs12.6bn (vs the street’s Rs12.5bn). Our
estimates are inline with street on revenue and EBITDA margins at 12.8%. Our PAT estimate at
Rs381mn is 29% below street’s Rs295mn.
Era Infra Engineering (Hold; Target Price: Rs209)
�� We downgraded the stock after Q3FY11 results as order-intake was below expectations and the
stock price outperformed peers. During Q4FY11, no major orders were announced and we
would wait for things to improve on its order-book which stands at around 2.5X FY11 revenue.
�� We expect Q4FY11 revenue of Rs12.9bn (up 32% YoY, 27% QoQ), EBITDA at Rs2.5bn (up 26%
YoY and 33% QoQ) and margin at 19%. PAT is expected to be Rs922mn (up 48% YoY, 58% QoQ).
Consolidated Construction Consortium (Buy; Target Price: Rs66)
�� We expect Q4FY11 standalone revenue at Rs7.3bn (up 14% YoY and 46% QoQ). EBITDA is
expected at Rs784mn (up 8.3% YoY and 62% QoQ) and EBIDTA margin at 10.8%.
�� CCCL’s stock price has remained in the range of Rs50-Rs55. We believe these levels present a
good entry point for investors as the risk-reward ratio has improved and within our coverage
universe provides the best risk-reward profile.
Ahluwalia Contracts (Buy; Target Price: Rs173)
�� ACIL revised its FY11 revenue guidance for FY11 from Rs20bn to Rs17bn post its Q3 results. This
is mainly on account of issues in real-estate segment clients (contributing around 50% of total
order book).
�� For Q4FY11, we expect revenue of Rs5bn, growth of just 5% YoY and 33% QoQ, EBITDA at
Rs557mn (margins of 11%) and PAT of Rs271mn (growth of 96.9% YoY and 91% QoQ).
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