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Order book concerns overdone: IVRCL has an order book of
~`23,979cr (4.2x FY2011 revenue), of which ~42.5% (`5,500cr
captive orders + `2,700cr AP orders + `2,000cr overseas orders)
is considered slow moving and markets are concerned over the
same. However, we believe that excluding these orders also
IVRCL's order book position is decent (refer exhibit below) at
`13,779cr (~2.4x FY2011 revenue). Hence, we believe these
concerns are overdone and IVRCL is at par with peers on the
revenue visibilty front.
Equity raising at subsidiary level: Given its equity commitment
over the next 12-18 months, we believe IVRCL would dilute its
stake in either IVRCL Assets (IVRAH) or Hindustan Dorr Oliver
and infuse the money in IVRAH for mobilising its captive road
projects. If IVRCL is able to achieve this, it would not only improve
its working capital cycle given that it constitutes ~23% of its order
book, it would also lend a fillip to execution.
Trading at crisis-level valuations; opportune to Buy: IVRCL Infra
is trading at valuations of 0.8x on P/BV on one-year forward
basis, which is very attractive considering that even post the
Lehman crisis (October 2008) the stock has been trading at
0.8-1.2x. Further, the economy is also in a much better shape in
comparison to those times. Hence, we believe such valuations
are lucrative for long-term investors.
In terms of the PE parameter as well, the stock is trading at very
attractive multiples. At the CMP of `72, the stock is trading at
8.4x and 4.9x to its FY2103E earnings without and with adjusting
for embedded value, respectively.
To conclude, the stock appears attractive on the valuation screen
given it is trading at a deep discount to its intrinsic value, and
we believe the downside from current levels is capped. Hence,
we recommend Buy on the stock with a target price of `100.
Further, it is should be noted that our SOTP target price factors in
IVRCL Assets on mcap basis, which is trading at 0.4x PB basis,
and further we have assigned 20% holding company discount.
Therefore, we believe this limits the downside to our SOTP due
to reduction in embedded values.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Order book concerns overdone: IVRCL has an order book of
~`23,979cr (4.2x FY2011 revenue), of which ~42.5% (`5,500cr
captive orders + `2,700cr AP orders + `2,000cr overseas orders)
is considered slow moving and markets are concerned over the
same. However, we believe that excluding these orders also
IVRCL's order book position is decent (refer exhibit below) at
`13,779cr (~2.4x FY2011 revenue). Hence, we believe these
concerns are overdone and IVRCL is at par with peers on the
revenue visibilty front.
Equity raising at subsidiary level: Given its equity commitment
over the next 12-18 months, we believe IVRCL would dilute its
stake in either IVRCL Assets (IVRAH) or Hindustan Dorr Oliver
and infuse the money in IVRAH for mobilising its captive road
projects. If IVRCL is able to achieve this, it would not only improve
its working capital cycle given that it constitutes ~23% of its order
book, it would also lend a fillip to execution.
Trading at crisis-level valuations; opportune to Buy: IVRCL Infra
is trading at valuations of 0.8x on P/BV on one-year forward
basis, which is very attractive considering that even post the
Lehman crisis (October 2008) the stock has been trading at
0.8-1.2x. Further, the economy is also in a much better shape in
comparison to those times. Hence, we believe such valuations
are lucrative for long-term investors.
In terms of the PE parameter as well, the stock is trading at very
attractive multiples. At the CMP of `72, the stock is trading at
8.4x and 4.9x to its FY2103E earnings without and with adjusting
for embedded value, respectively.
To conclude, the stock appears attractive on the valuation screen
given it is trading at a deep discount to its intrinsic value, and
we believe the downside from current levels is capped. Hence,
we recommend Buy on the stock with a target price of `100.
Further, it is should be noted that our SOTP target price factors in
IVRCL Assets on mcap basis, which is trading at 0.4x PB basis,
and further we have assigned 20% holding company discount.
Therefore, we believe this limits the downside to our SOTP due
to reduction in embedded values.
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