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IVRCL (IVRC)
Construction
Execution fails to keep pace as debt and interest costs rise. IVRCL reported flat
sales (Rs10.5 bn), significantly below estimates (Rs12 bn). Higher depreciation and
interest cost led to a PAT of only Rs74 mn. Rise in net debt (Rs6 bn) was led by higher
loans and advances and lower creditors. The board approved merger with IVRCL A&H
(broadly in line with market capitalization) and de-merger of tower and real estate
business. Revise earnings and TP to Rs59 from Rs75 earlier, retain BUY.
Sales disappoint, broadly in-line margin; higher depreciation and interest costs squeeze earnings
Flat sales, 13% below estimate. IVRCL reported yoy flat sales of Rs10.5 bn which were
significantly below our estimate of Rs12 bn. The slower-than-expected revenues were possibly
led by delay in clearances, execution by smaller subcontractors etc.
Lower raw material cost support. EBITDA margin at 9% was broadly in line with expectation.
Higher depreciation, interest cost lead 59% PAT miss. Depreciation at Rs250 mn (up 36%,
Rs212 mn estimate) and interest cost at Rs652 mn (up 36% yoy, Rs622 mn estimate) led to
59% miss at PBT level. Lower implied tax rate (23%) led to PAT of Rs74 mn (Rs158 mn estimate)
Debt increases to fund higher loans and advances; working capital increases on lower liabilities
Net debt increased by Rs6 bn from end-Mar-11 to Rs25 bn on increase in loans and advances (Rs4
bn increase). The company was able to reduce its debtors by Rs1.5 bn over 1HFY12 to Rs17.7 bn
although current liabilities fell even more by Rs3 bn. Net working capital therefore increased
substantially to Rs32 bn (Rs26 bn at end-FY2011) or 206 days of sales.
Merges IVRCL assets with itself (broadly as per market cap); to demerge tower, real estate business
The company approved merger of IVRCL Assets and Limited (IVRCL A&H) with itself swapping 6
shares of IVRCL A&H for 5 shares of IVRCL (broadly as per current market capitalization of IVRCL
assets) increasing IVRCL’s number of shares to 306 mn from 267 mn shares. The company also
approved demerger of its tower manufacturing and real estate businesses into two different
wholly owned subsidiaries.
Revise estimates on higher interest cost and lower execution assumptions
We revise core business estimates to Rs4.2 and Rs5 from Rs5.7 and Rs6.6 for FY2012E and
FY2013E. We revise SOTP price to Rs59 from Rs75 on (1) lower execution (4-5% cut) and (2)
higher interest cost. Retain BUY on attractive valuations of 4.2X FY2012E (ex subs) and potential
peaking of interest rate cycle. Key risk is lower execution and higher debt and interest cost.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IVRCL (IVRC)
Construction
Execution fails to keep pace as debt and interest costs rise. IVRCL reported flat
sales (Rs10.5 bn), significantly below estimates (Rs12 bn). Higher depreciation and
interest cost led to a PAT of only Rs74 mn. Rise in net debt (Rs6 bn) was led by higher
loans and advances and lower creditors. The board approved merger with IVRCL A&H
(broadly in line with market capitalization) and de-merger of tower and real estate
business. Revise earnings and TP to Rs59 from Rs75 earlier, retain BUY.
Sales disappoint, broadly in-line margin; higher depreciation and interest costs squeeze earnings
Flat sales, 13% below estimate. IVRCL reported yoy flat sales of Rs10.5 bn which were
significantly below our estimate of Rs12 bn. The slower-than-expected revenues were possibly
led by delay in clearances, execution by smaller subcontractors etc.
Lower raw material cost support. EBITDA margin at 9% was broadly in line with expectation.
Higher depreciation, interest cost lead 59% PAT miss. Depreciation at Rs250 mn (up 36%,
Rs212 mn estimate) and interest cost at Rs652 mn (up 36% yoy, Rs622 mn estimate) led to
59% miss at PBT level. Lower implied tax rate (23%) led to PAT of Rs74 mn (Rs158 mn estimate)
Debt increases to fund higher loans and advances; working capital increases on lower liabilities
Net debt increased by Rs6 bn from end-Mar-11 to Rs25 bn on increase in loans and advances (Rs4
bn increase). The company was able to reduce its debtors by Rs1.5 bn over 1HFY12 to Rs17.7 bn
although current liabilities fell even more by Rs3 bn. Net working capital therefore increased
substantially to Rs32 bn (Rs26 bn at end-FY2011) or 206 days of sales.
Merges IVRCL assets with itself (broadly as per market cap); to demerge tower, real estate business
The company approved merger of IVRCL Assets and Limited (IVRCL A&H) with itself swapping 6
shares of IVRCL A&H for 5 shares of IVRCL (broadly as per current market capitalization of IVRCL
assets) increasing IVRCL’s number of shares to 306 mn from 267 mn shares. The company also
approved demerger of its tower manufacturing and real estate businesses into two different
wholly owned subsidiaries.
Revise estimates on higher interest cost and lower execution assumptions
We revise core business estimates to Rs4.2 and Rs5 from Rs5.7 and Rs6.6 for FY2012E and
FY2013E. We revise SOTP price to Rs59 from Rs75 on (1) lower execution (4-5% cut) and (2)
higher interest cost. Retain BUY on attractive valuations of 4.2X FY2012E (ex subs) and potential
peaking of interest rate cycle. Key risk is lower execution and higher debt and interest cost.
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