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Ashoka Buildcon
A large number of operational assets, relatively low debt:equity and a mix
of operational highways (national/state) make Ashoka Buildcon a strong
player compared to its peers. Operational roads experience along with its
in-house road project execution capabilities (from traffic estimation to
concrete manufacturing to road construction) are key the levers of its
strategy to expand into larger NHAI projects. However, currently it lacks
the adequate equity capital to fund its recent project wins and bid for new
projects.
Company Background
Ashoka Buildcon is an infrastructure company engaged in constructing and
operating roads and power T&D projects in India. The company entered the road
BOT space in 1997, has completed 21 road BOT projects and currently has 6 BOT
projects under execution. It also has 15 ready-mix Concrete (RMC) facilities and
own construction equipment bank which supports its EPC division. The company
also undertakes toll collection for self-owned and Government roads/bridges.
Recent Financial Performance
In 1HFY12, whilst the overall revenues grew 44% (YoY) driven by high growth in
both the EPC (45% growth YoY) and the BOT (42% growth YoY) segments, overall
EBITDA margin declined by 447bps (YoY) as higher direct expenses impacted
profitability in both the segments. Further, in 1HFY12, higher interest (79% YoY
increase) and depreciation expenses (58% YoY increase due to change in method
of amortizing intangibles) resulted in overall PAT margin of 6.7% (10.5% in
1HFY11). Debt: equity increased to 1.6x at end of Sept-11 (1.4x at end of Mar-11).
Outlook
Ashoka’s scale and operational experience should be considered alongside its
balance sheet requirements and past financial re-leveraging knowledge before
forming any investment decision. Lack of meaningful consensus estimates for
Ashoka limit availability of any forward looking valuation multiples. On FY11
basis, Ashoka is trading at 1.2x P/B, which is at a discount of 25% to peers (ITNL
IRB and Sadbhav); lack of equity could be one of the reasons for such a discount.
Conference Meeting Notes
Ashoka Buildcon represented by Mr Paresh Mehta, CFO
Analyst:
Nitin Bhasin, nitinbhasin@ambitcapital.com, Tel: +91 22 3043 3241
1. Competition has marginally moderated in the roads segment:
Management highlighted that over the last six months competition has
moderated, as the number of bidders for a road BOT project has reduced to
14-15 players from 20-25 players. In the current scenario of rising interest
rates, it is difficult for the very small developers to continuously bid at lower
IRRs, therefore, they have reduced their number of new bids. Management
highlighted that the company expects competition to further reduce in the next
6-8 months.
2. Equity dilution in the infrastructure subsidiary is in advanced stages: In
order to generate ~`5.5bn to meet its equity requirements in the existing BOT
assets, Ashoka Buildcon has been looking at diluting its stake in its
infrastructure subsidiary (which has a portfolio of road BOT assets) for the last
6-8 months. Management highlighted that they are in advanced stages of
discussion with private equity investors and are hopeful of closing the deal by
end of March 2012. Management expects an attractive valuation of ~1.5x (of
equity invested) as most of the projects under its infrastructure subsidiary are
operational.
3. Selective bidding strategy: Management highlighted that they will be very
selective while bidding for new road projects and will maintain equity IRRs at
~16% for the BOT road projects. Ashoka Buildcon is targeting an order flow of
~`15bn-`16bn every 12 months, which it can easily achieve by wining onetwo
large BOT projects. However, the company is not looking at bidding for
large projects in the next 6-8 months as it has recently received a BOT project
worth `15bn. Moreover, the management also highlighted that the recently
won project is on the NH-6 and that it is a strategic project wherein they
believe that they have an edge over the others given their existing presence on
multiple sections of NH-6. Due to selective bidding, the management believes
that their success ratio is 25%.
4. NHAI’s project cost estimation could be very conservative: The
management highlighted that the wide difference between the expectations of
NHAI and the bids of developers should not be construed as aggressive
biddings by the developers. It could be the case that these bids are dated and
the estimates of NHAI are too conservative in terms of traffic thus leading to
premiums by developers instead of negative grant expectations highlighted by
NHAI.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ashoka Buildcon
A large number of operational assets, relatively low debt:equity and a mix
of operational highways (national/state) make Ashoka Buildcon a strong
player compared to its peers. Operational roads experience along with its
in-house road project execution capabilities (from traffic estimation to
concrete manufacturing to road construction) are key the levers of its
strategy to expand into larger NHAI projects. However, currently it lacks
the adequate equity capital to fund its recent project wins and bid for new
projects.
Company Background
Ashoka Buildcon is an infrastructure company engaged in constructing and
operating roads and power T&D projects in India. The company entered the road
BOT space in 1997, has completed 21 road BOT projects and currently has 6 BOT
projects under execution. It also has 15 ready-mix Concrete (RMC) facilities and
own construction equipment bank which supports its EPC division. The company
also undertakes toll collection for self-owned and Government roads/bridges.
Recent Financial Performance
In 1HFY12, whilst the overall revenues grew 44% (YoY) driven by high growth in
both the EPC (45% growth YoY) and the BOT (42% growth YoY) segments, overall
EBITDA margin declined by 447bps (YoY) as higher direct expenses impacted
profitability in both the segments. Further, in 1HFY12, higher interest (79% YoY
increase) and depreciation expenses (58% YoY increase due to change in method
of amortizing intangibles) resulted in overall PAT margin of 6.7% (10.5% in
1HFY11). Debt: equity increased to 1.6x at end of Sept-11 (1.4x at end of Mar-11).
Outlook
Ashoka’s scale and operational experience should be considered alongside its
balance sheet requirements and past financial re-leveraging knowledge before
forming any investment decision. Lack of meaningful consensus estimates for
Ashoka limit availability of any forward looking valuation multiples. On FY11
basis, Ashoka is trading at 1.2x P/B, which is at a discount of 25% to peers (ITNL
IRB and Sadbhav); lack of equity could be one of the reasons for such a discount.
Conference Meeting Notes
Ashoka Buildcon represented by Mr Paresh Mehta, CFO
Analyst:
Nitin Bhasin, nitinbhasin@ambitcapital.com, Tel: +91 22 3043 3241
1. Competition has marginally moderated in the roads segment:
Management highlighted that over the last six months competition has
moderated, as the number of bidders for a road BOT project has reduced to
14-15 players from 20-25 players. In the current scenario of rising interest
rates, it is difficult for the very small developers to continuously bid at lower
IRRs, therefore, they have reduced their number of new bids. Management
highlighted that the company expects competition to further reduce in the next
6-8 months.
2. Equity dilution in the infrastructure subsidiary is in advanced stages: In
order to generate ~`5.5bn to meet its equity requirements in the existing BOT
assets, Ashoka Buildcon has been looking at diluting its stake in its
infrastructure subsidiary (which has a portfolio of road BOT assets) for the last
6-8 months. Management highlighted that they are in advanced stages of
discussion with private equity investors and are hopeful of closing the deal by
end of March 2012. Management expects an attractive valuation of ~1.5x (of
equity invested) as most of the projects under its infrastructure subsidiary are
operational.
3. Selective bidding strategy: Management highlighted that they will be very
selective while bidding for new road projects and will maintain equity IRRs at
~16% for the BOT road projects. Ashoka Buildcon is targeting an order flow of
~`15bn-`16bn every 12 months, which it can easily achieve by wining onetwo
large BOT projects. However, the company is not looking at bidding for
large projects in the next 6-8 months as it has recently received a BOT project
worth `15bn. Moreover, the management also highlighted that the recently
won project is on the NH-6 and that it is a strategic project wherein they
believe that they have an edge over the others given their existing presence on
multiple sections of NH-6. Due to selective bidding, the management believes
that their success ratio is 25%.
4. NHAI’s project cost estimation could be very conservative: The
management highlighted that the wide difference between the expectations of
NHAI and the bids of developers should not be construed as aggressive
biddings by the developers. It could be the case that these bids are dated and
the estimates of NHAI are too conservative in terms of traffic thus leading to
premiums by developers instead of negative grant expectations highlighted by
NHAI.
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