`BOT´ is the way Ashoka Buildcon :: Centrum

`BOT´ is the way
Ashoka Buildcon (Ashoka) has moved up the value
chain from being just an EPC player to a BOT developer.
With an asset base of over 18 owned projects (12 road
BOT and 6 foot over bridges) and 7 road BOT projects in
Ashoka Concessions (ACL), the company has developed
strong visibility. With a backward integrated EPC
model, the company is well placed to capture better
than industry margins through better project
management skills. Additionally, SBI-Macquarie’s
Rs7.0bn capital infusion with further commitments has
provided visibility for securing large size road projects
in future. We believe the company will grow at a faster
clip going ahead due to the steady stream of earnings
from its EPC business coupled with rising cash flows
from toll collections. We initiate coverage on the stock
with a ‘Buy’ rating and a target price of Rs332.

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 Cash flow generating portfolio of BOT assets: Ashoka has a
strong BOT portfolio with 18 owned assets (12 road BOT and 6
foot over bridges and the non-operational Cuttack-Angul
project) which are generating cash flows to be utilised for
funding future growth. Additionally, 4 of the 7 BOT assets under
ACL are also adding to cash flows. Nine of Ashoka’s total assets
are on NH-6 which is a relatively high traffic corridor (passing
through the states of Maharashtra, Madhya Pradesh,
Chhattisgarh and Orissa) providing visibility on cash flows. The
company recently commissioned two bridges on river
Roopnarayan in its 6-lane Dhankuni-Kharagpur BOT project on
NH-6 near Kolkata which is likely to add about Rs800mn to toll
revenues during construction period due to early completion.
 SBI-Macquarie fund infusion frees up capital for future
growth: SBI-Macquarie’s Rs7.0bn commitment of capital infusion
in 7 of Ashoka’s BOT projects (plus contingent requirement of
Rs1.0bn) will not only free up Ashoka’s equity but also provide
visibility on the revenue potential of these assets through timely
completion. The fund’s additional commitment of over Rs6.5bn
(apart from its technical qualifications) will help Ashoka secure
large ticket projects in future (the company is eligible to bid for
projects of over Rs30bn).
 Backward integrated EPC model to provide steady stream of
earnings: Ashoka’s backward integrated EPC model provides
visibility on steadily growing earnings with better margins
through better project management without time and cost
overruns (barring delays due to slow government approvals).
Earnings from the EPC segment will be ploughed back for future
growth of the BOT segment.
 Valuations: We like Ashoka due to its mature BOT portfolio
which is generating rising cash flows that can be ploughed back
for future growth. The EPC segment further supports profitability
with steady stream of earnings and superior execution
capabilities, thus minimising time and cost overruns. SBIMacquarie
fund infusion has strengthened the equity position for
Ashoka and gives the company enough bandwidth to bid for
large BOT projects (of over Rs30bn). The company recently
rewarded shareholders with 1:2 bonus and maiden dividend of
40% (Rs4/share). We have valued Ashoka on SOTP basis with the
EPC segment at 3.0x EV/EBITDA and BOT projects with NPV and
P/BV. Based on our estimates, we have arrived at SOTP value of
Rs332/share and recommend ‘Buy’ on the stock