IVRCL Infrastructure – 2QFY2011 Result Update Angel Broking

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   IVRCL Infrastructure – 2QFY2011 Result Update

Angel Broking maintains a Buy on IVRCL Infrastructure with a Target Price of Rs195.

IVRCL Infrastructure (IVRCL) reported disappointing set of numbers for the second
quarter, which was below our and street estimates. The disappointment on the
top-line and EBIDTAM front led to the higher-than-expected de-growth on the
bottom-line front. Nonetheless, given the robust order book and undemanding
valuations, we maintain a Buy on the stock.


Numbers disappoint; higher other operating income saving grace: On the
top-line front, the company posted 14.4% de-growth to `1,075cr (`1,257cr) as
against our expectation of de-growth of 7.6% mainly due to loss of revenue
because of monsoons (~`300cr). Operating margins declined by 100bp to 8.9%
(9.9%) v/s our expectation of 9.3%. Margins were lower in spite of higher other
operating income; adjusted for the same margins would have come in at a
dismal 7.2%. However, management has guided for EBITDAM of 9.5-9.7% for
FY2011. The below-par performance on the top-line and operating fronts led to a
staggering 51.3% de-growth in earnings v/s our estimate of 32.8% de-growth.

Outlook and Valuation: Management has lowered its top-line guidance of
`6,700–7,100cr to `6,500cr (our earlier estimate), which still implies growth run
rate of ~47% for the next half. However, we believe that it would be an uphill task
for the company to achieve the same. We have pruned our estimates and also
expect the company to lower its guidance going ahead. At the CMP of `135
adjusting for its subsidiaries, the stock is trading at attractive valuations of a P/E of
8.1x and P/BV of 1.0x on FY2012 estimates. Therefore, on the back of the
company’s excellent execution track record, robust order book-to-sales ratio and
attractive valuations, we maintain a Buy on the stock, with a revised SOTP-based
Target Price of `195 (`216).


Investment Arguments
Robust order book with reducing dependence on AP: IVRCL has a robust order
book of `23,600cr (4.0x FY2011E revenues), which lends revenue visibility. Robust
order booking over the last few quarters has ensured that its dependence on the
orders from Andhra Pradesh (AP) have reduced significantly from 28% to 15%
currently. IVRCL had been facing issues on the execution front due to its high
exposure to AP. However, now with its exposure to the state declining, we expect
the company to be back on growth trajectory. Further, recently the company also
bagged orders in international markets, which will further diversify its order book.

Fund raising, a near-term catalyst: IVRCL Asset started tolling the
Jalandhar-Amritsar road in May’10 and the Chennai water project has also
started. In FY2011, all its old BOT projects would start generating revenues which
would help fund its future investments. Management has guided increase in
revenues from these BOT projects once fully operational to `1.4cr/day. Also, IVRCL
Assets plans to raise money going ahead as would equity infusion to the tune of
`1300-1400cr over the next three years. We believe that value unlocking at the
subsidiary level will act as a near-term catalyst.