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Despite a disappointing 1QFY12 performance, we believe IVRCL is better geared for future
growth than its peers under our coverage. The short-term pain of a high interest-rate environment
impacted project executions during the quarter, but the bottom of the earnings cycle is nearing, in
our view. We maintain our Buy call.
Slower-than-expected project executions impacted 1QFY12 profitability
IVRCL reported 1QFY12 standalone revenue at Rs11.2bn – up 2% yoy but down 45% qoq and
9% below our forecasts. Management said slower project executions were due to working capital
pressure faced by subcontractors and suppliers as a result of high interest rates. Also, EBITDA
margins were further impacted by higher construction expenses and time lags in passing on
higher costs to clients. Thus, the 1Q margin was 7.6%, down 186bp yoy, and EBITDA was
Rs856m, 28% lower than we had forecast. Standalone PAT for the quarter was Rs42m, down
87% yoy and 95% qoq. 1Q EPS was Rs0.15.
EPS forecasts down 31% for FY12F and 13% for FY13F
Management said it expected slow project execution to continue as long as interest rates
remained high. We believe interest rates should start softening by 4QFY12 and build a slower
revenue growth into the next two quarters. As a result, we lower our revenue forecasts 4.4% for
FY12 and 6.7% for FY13. Further, we have also built in some margin pressure for FY12. We think
the company is nearing the bottom of its earnings cycle. We still forecast FY13 PAT to grow 46%
yoy as we believe softening interest rates and working capital efficiencies will likely grow revenue
and margin.
We believe that bottom of the earnings cycle is nearing; maintain Buy
We lower our target price to Rs67.6 (from Rs102.4), on EPS cuts and price declines of its listed
subsidiaries. We think IVRCL has seen the bottom in absolute profits terms and things should
improve now. Also, its biggest region in revenue terms, Andhra Pradesh, has started to see
increased collections, likely resulting in increased orders and sales traction in future, in our view.
The stock corrected 45% in the last three months (Sensex down 6%) and is now 22% above its
five-year low. Adjusted for subsidiaries’ valuation it is trading at 3.5x FY12F PE. On a
consolidated level, the stock’s one-year forward PBV is 0.4x, testing FY08’s lows.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Despite a disappointing 1QFY12 performance, we believe IVRCL is better geared for future
growth than its peers under our coverage. The short-term pain of a high interest-rate environment
impacted project executions during the quarter, but the bottom of the earnings cycle is nearing, in
our view. We maintain our Buy call.
Slower-than-expected project executions impacted 1QFY12 profitability
IVRCL reported 1QFY12 standalone revenue at Rs11.2bn – up 2% yoy but down 45% qoq and
9% below our forecasts. Management said slower project executions were due to working capital
pressure faced by subcontractors and suppliers as a result of high interest rates. Also, EBITDA
margins were further impacted by higher construction expenses and time lags in passing on
higher costs to clients. Thus, the 1Q margin was 7.6%, down 186bp yoy, and EBITDA was
Rs856m, 28% lower than we had forecast. Standalone PAT for the quarter was Rs42m, down
87% yoy and 95% qoq. 1Q EPS was Rs0.15.
EPS forecasts down 31% for FY12F and 13% for FY13F
Management said it expected slow project execution to continue as long as interest rates
remained high. We believe interest rates should start softening by 4QFY12 and build a slower
revenue growth into the next two quarters. As a result, we lower our revenue forecasts 4.4% for
FY12 and 6.7% for FY13. Further, we have also built in some margin pressure for FY12. We think
the company is nearing the bottom of its earnings cycle. We still forecast FY13 PAT to grow 46%
yoy as we believe softening interest rates and working capital efficiencies will likely grow revenue
and margin.
We believe that bottom of the earnings cycle is nearing; maintain Buy
We lower our target price to Rs67.6 (from Rs102.4), on EPS cuts and price declines of its listed
subsidiaries. We think IVRCL has seen the bottom in absolute profits terms and things should
improve now. Also, its biggest region in revenue terms, Andhra Pradesh, has started to see
increased collections, likely resulting in increased orders and sales traction in future, in our view.
The stock corrected 45% in the last three months (Sensex down 6%) and is now 22% above its
five-year low. Adjusted for subsidiaries’ valuation it is trading at 3.5x FY12F PE. On a
consolidated level, the stock’s one-year forward PBV is 0.4x, testing FY08’s lows.
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