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Ahluwalia Contracts Q3FY12 reported revenues was down 6% y-o-y at ` 3.5bln (3% lower than our expectation). Ahluwalia reported its first ever loss at the operating level. The erosion in operating margin resulted in loss of ` 168mln (as against our expectation of net profit of ` 35mln). The order inflow too has been disappointing at ~` 1.4bln. We cut our order inflow assumption from ` 12bln to ` 14bln and revise our FY13E sales downward by 6%. With the interest rate cycle expected to peak out in Mar’12 the business environment for real estate is likely to remain stable and can see meaningful improvement in H2FY13E. Incorporating such a scenario we have built in order inflows of ` 16bln and operating margins at ~8% levels. Even after incorporating a optimistic scenario the stock is currently trading at 11x its FY13E earnings which is only 8% discount to its long term average multiple. With risk of receivable turning bad yet to moderate we may see cost overrun pain continuing over next two quarters. We shall turn constructive on the stock on signs of improved execution rate & stable operating margins.Hence, we continue to maintain Sell with a price target of ` 66
Operating margin continues to disappoint
The company reported its first ever loss at the operating level. Slowdown in execution due to receivable issues with some clients has resulted in fixed costs like labour, site machinery and office expenses not getting absorbed. Delay in execution has also resulted in cost overruns in some of the fixed projects of the company. With interest rate expected to see a decline in FY13 we expect real estate sector to see some improvement and hence have factored in EBIDTA margin of 8%.
Order inflow declines; to miss on order inflow guidance
The management had guided for an order inflow of ` 26bln for FY12E but has bagged only ` 8.1bln in 9MFY12 with ` 1.4bln worth inflow in Q3FY12. We have cut our order inflow assumption for FY12E to ` 12bln. The total order book stands at ` 34.6bln. Residential forms 47% and Commercial segment about 11.4% of the orderbook and is comfortable at 2.5x of FY12E sales.
Valuation
Ahluwalia, being primarily dependent on real estate sector for orders, has been worst hit due to the real estate slump. Also, since it does not have requisite pre-qualification in other infrastructure segments we expect the company to struggle to return to normal growth & profitability levels in the immediate term. Any improvement in sentiment for the real estate sector shall be positive for the stock. However, given the recent run up in the stock it is trading at 11x FY13E earnings. We shall trun positive only on signs of stable execution rate & margins. We continue to maintain Sell with a price target of ` 66
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ahluwalia Contracts Q3FY12 reported revenues was down 6% y-o-y at ` 3.5bln (3% lower than our expectation). Ahluwalia reported its first ever loss at the operating level. The erosion in operating margin resulted in loss of ` 168mln (as against our expectation of net profit of ` 35mln). The order inflow too has been disappointing at ~` 1.4bln. We cut our order inflow assumption from ` 12bln to ` 14bln and revise our FY13E sales downward by 6%. With the interest rate cycle expected to peak out in Mar’12 the business environment for real estate is likely to remain stable and can see meaningful improvement in H2FY13E. Incorporating such a scenario we have built in order inflows of ` 16bln and operating margins at ~8% levels. Even after incorporating a optimistic scenario the stock is currently trading at 11x its FY13E earnings which is only 8% discount to its long term average multiple. With risk of receivable turning bad yet to moderate we may see cost overrun pain continuing over next two quarters. We shall turn constructive on the stock on signs of improved execution rate & stable operating margins.Hence, we continue to maintain Sell with a price target of ` 66
Operating margin continues to disappoint
The company reported its first ever loss at the operating level. Slowdown in execution due to receivable issues with some clients has resulted in fixed costs like labour, site machinery and office expenses not getting absorbed. Delay in execution has also resulted in cost overruns in some of the fixed projects of the company. With interest rate expected to see a decline in FY13 we expect real estate sector to see some improvement and hence have factored in EBIDTA margin of 8%.
Order inflow declines; to miss on order inflow guidance
The management had guided for an order inflow of ` 26bln for FY12E but has bagged only ` 8.1bln in 9MFY12 with ` 1.4bln worth inflow in Q3FY12. We have cut our order inflow assumption for FY12E to ` 12bln. The total order book stands at ` 34.6bln. Residential forms 47% and Commercial segment about 11.4% of the orderbook and is comfortable at 2.5x of FY12E sales.
Valuation
Ahluwalia, being primarily dependent on real estate sector for orders, has been worst hit due to the real estate slump. Also, since it does not have requisite pre-qualification in other infrastructure segments we expect the company to struggle to return to normal growth & profitability levels in the immediate term. Any improvement in sentiment for the real estate sector shall be positive for the stock. However, given the recent run up in the stock it is trading at 11x FY13E earnings. We shall trun positive only on signs of stable execution rate & margins. We continue to maintain Sell with a price target of ` 66
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