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Yet Another Subdued Performance
IVRCL reported net profit of Rs81mn (down 65% YoY) for 2QFY12, below our
expectation of Rs141mn but above Bloomberg consensus estimate of Rs56mn. Net
sales remained flat at Rs10.4bn, 17% lower than our expectation and 9% down from
Bloomberg consensus estimate. However, EBITDA margin improved 230bps YoY
to 9% (60bps higher than our expectation) and EBITDA increased 32% to Rs937mn.
Interest costs and depreciation increased 36% each to Rs 652mn and Rs 249mn,
respectively. Subsequently, net profit fell 65% to Rs 81mn. We have cut our
revenue estimates by 8% for FY12E and by 5% for FY13E to factor in lower-thanexpected
revenue traction. Subsequently, this led to earnings downgrade of 22%
for FY12E and 11% for FY13E. We maintain our Buy rating on IVRCL with a revised
target price of Rs55 from Rs59 earlier.
Slower-than-expected project execution: IVRCL reported flat net sales growth at
Rs10.4bn due to slower execution of slow-moving Andhra Pradesh-based projects and
the monsoon season. The company expects revenue growth to improve in the coming
quarters, but we have cut our revenue estimates by 8% for FY12 and 5% for FY13.
EBITDA increased 32% to Rs 937mn and EBITDA margin improved 230bps because of a
low base during 2QFY11 (prior period adjustments). Interest costs and depreciation
increased 36% each to Rs652mn and Rs249mn, respectively. Subsequently, net profit
fell 65% to Rs81mn. Subsequent to our cut in revenue estimate, we downgrade our
earnings estimate by 22% for FY12E and 11% for FY13E.
Order backlog at 4.6x; comfort on revenue visibility front: During 2QFY12, the
company witnessed order inflow of Rs70bn (including L1) and the order book stood at
Rs260bn. This works out to 4.6x order book-to-bill (BTB) ratio on FY11 revenue, which
gives comfort on revenue visibility for the next three years.
Merger of IVRCL Asset Holding (IVRCLAH) with IVRCL: The management has
proposed the merger of arm IVRCLAH with IVRCL, for which the board has approved a
swap ratio of five shares of IVRCL for every six shares held in IVRCLAH. This has valued
IVRCLAH at Rs6.2bn which is in line with the valuation for IVRCLAH in our SOTP
valuation. IVRCL currently holds 75.7% stake in IVRCLAH, which will get cancelled and
lead to issue of 39.8m shares of IVRCL, thereby resulting in equity dilution of 14.9% in
IVRCL.
Valuation: We believe the declining profitability and high interest rate scenario is nearing
their bottom and it’s already discounted in the CMP. Therefore, despite a disappointing
quarter, we believe the company’s performance in the coming quarters will improve and
better geared up for future growth. Following the earnings downgrade, we cut our
target price on IVRCL from Rs59 earlier to Rs55, but maintain our Buy rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Yet Another Subdued Performance
IVRCL reported net profit of Rs81mn (down 65% YoY) for 2QFY12, below our
expectation of Rs141mn but above Bloomberg consensus estimate of Rs56mn. Net
sales remained flat at Rs10.4bn, 17% lower than our expectation and 9% down from
Bloomberg consensus estimate. However, EBITDA margin improved 230bps YoY
to 9% (60bps higher than our expectation) and EBITDA increased 32% to Rs937mn.
Interest costs and depreciation increased 36% each to Rs 652mn and Rs 249mn,
respectively. Subsequently, net profit fell 65% to Rs 81mn. We have cut our
revenue estimates by 8% for FY12E and by 5% for FY13E to factor in lower-thanexpected
revenue traction. Subsequently, this led to earnings downgrade of 22%
for FY12E and 11% for FY13E. We maintain our Buy rating on IVRCL with a revised
target price of Rs55 from Rs59 earlier.
Slower-than-expected project execution: IVRCL reported flat net sales growth at
Rs10.4bn due to slower execution of slow-moving Andhra Pradesh-based projects and
the monsoon season. The company expects revenue growth to improve in the coming
quarters, but we have cut our revenue estimates by 8% for FY12 and 5% for FY13.
EBITDA increased 32% to Rs 937mn and EBITDA margin improved 230bps because of a
low base during 2QFY11 (prior period adjustments). Interest costs and depreciation
increased 36% each to Rs652mn and Rs249mn, respectively. Subsequently, net profit
fell 65% to Rs81mn. Subsequent to our cut in revenue estimate, we downgrade our
earnings estimate by 22% for FY12E and 11% for FY13E.
Order backlog at 4.6x; comfort on revenue visibility front: During 2QFY12, the
company witnessed order inflow of Rs70bn (including L1) and the order book stood at
Rs260bn. This works out to 4.6x order book-to-bill (BTB) ratio on FY11 revenue, which
gives comfort on revenue visibility for the next three years.
Merger of IVRCL Asset Holding (IVRCLAH) with IVRCL: The management has
proposed the merger of arm IVRCLAH with IVRCL, for which the board has approved a
swap ratio of five shares of IVRCL for every six shares held in IVRCLAH. This has valued
IVRCLAH at Rs6.2bn which is in line with the valuation for IVRCLAH in our SOTP
valuation. IVRCL currently holds 75.7% stake in IVRCLAH, which will get cancelled and
lead to issue of 39.8m shares of IVRCL, thereby resulting in equity dilution of 14.9% in
IVRCL.
Valuation: We believe the declining profitability and high interest rate scenario is nearing
their bottom and it’s already discounted in the CMP. Therefore, despite a disappointing
quarter, we believe the company’s performance in the coming quarters will improve and
better geared up for future growth. Following the earnings downgrade, we cut our
target price on IVRCL from Rs59 earlier to Rs55, but maintain our Buy rating.
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