IVRCL Infrastructure & Project - Earnings continue to disappoint: Emkay

Visit http://indiaer.blogspot.com/ for complete details �� ��

IVRCL Infrastructure & Project

Earnings continue to disappoint

HOLD

CMP: Rs139                                        Target Price: Rs160

---

n     Q2FY11 PAT at Rs 233 mn sharply below estimates (Rs434 mn) led by revenue decline of 16%. Execution impacted by delays in financial closure of own BOT projects & extended  monsoons

n     EBITDA at Rs 706 mn down 41% margins at 6.7%, contracted 287 bps – as slow execution rate led to poor overhead absorption –impacting margins to an extent of 230 bps

n     Mgmt revenue guidance of ~Rs6.75 bn, lowered to Rs 6.5 bn still implying a steep H2FY11E revenue growth of 42% & EBIDTA growth of 47%

n     We believe IVRCL will continue to face execution headwinds as ~ 40% of order backlog remains slow moving. We cut FY11E/12E EPS by 19.5%/16.5%. Maintain  HOLD - cut target to Rs160

Revenue decline by 16% led by extended monsoons impacting execution

IVRCL’s revenue declined 16% yoy (Revenues Rs10.5 bn v/s estimate of Rs12.5 bn) with

the company still reeling under execution pressure due to delays in financial closure of own

BOT projects & extended monsoons across country. Management highlighted that due to

extended rains, the company lost close to Rs 3 bn of revenues in Q2FY11. The execution

delays due AP related project coupled with delays in achieving financial closure for inhouse

BOT projects (being awarded to subsidiary IVRCL Assets & Holdings) are impacting

execution of the order backlog. With AP irrigation orders yet to see any execution

improvement and major BOT project orders (for subs) yet to achieve financial closure,

close to 40% of the order backlog faces execution hurdles.

Reported EBIDTA margins at 6.7% - sharply lower than estimates

With sharp deceleration in execution, EBITDA margin stood at a meager 6.7%, down 287

bps yoy, resulting in overall EBIDTA of Rs 0.7 bn declining by 41.2% yoy. Quarterly

performance was significantly impacted by additional absorption of overheads which led to

a reduction of 2.3% from the EBITDA margins.

Net profit declines 51.4% yoy even after 3X jump in other income

On account of 38.4% increase in depreciation charge and 35.8% increase in interest

expenses (led by higher debt of Rs22.7 bn on books) , net profit for the quarter at Rs233

mn declined 51.4% yoy. We would like to highlight that though the report PBT stood at

Rs345 mn, this includes other income to the tune of Rs 304.4 mn which grew by 3.1X yoy.

One time items included in other income included a service tax write back of Rs 80 mn

(corresponding charge in expenditure also),DGFT claims to the tune of Rs 70-80 mn and

qualification income of Rs40 mn from partners/JVs, which are not expected to recur again.

Excluding these items PBT for the quarter would have stood at Rs97.3 mn, down 87.7%,

as against reported decline of 56.2%.

Management lowers revenue guidance by Rs 2.5 bn to Rs 65 bn

Even after a disappointing first half, management has lower its revenues guidance by just

Rs2.5 bn and remains confident of achieving full year revenues of Rs65 bn & EBIDTA

margins of 9.5-9.75% for FY11. The revised guidance implies a steep H2FY11 revenue

growth of 41.5% & EBIDTA growth of 47.0%.