On a strong footing Ashoka Buildcon :: HDFC Sec, report

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On a strong footing Ashoka Buildcon’s (ASBL) 3QFY15 consolidated PAT of Rs 13mn was subdued owing to higher interest costs on account of the Sambalpur project being commissioned during the quarter. While EPC revenues were flat on YoY and QoQ basis, better performance in ACL BOT projects (BOT revenues up 47% YoY, 5% traffic growth) led to 9% YoY revenue growth. With a strong portfolio of BOT projects and a healthy balance sheet, we believe that ASBL is well placed to benefit from a pickup in new orders in road projects at the NHAI and State level. We expect ASBL’s toll revenues to grow at 38% CAGR over FY14-17E to Rs 7.7bn led by commissioning of three major ACL projects : Belgaum-Dharwad, Sambalpur-Baragarh and Dhankuni Kharagpur. Also, we expect standalone EPC revenues to grow to Rs 20.9bn by FY17E from Rs 15bn in FY14 led by pick up in road project orders. ASBL already has a healthy order book of Rs 34bn (2x FY15E EPC revenues) that gives revenue visibility over FY16-17E. We inititate coverage on Ashoka Buildcon (ASBL) with a BUY rating and a target price of Rs 192/share. Our SOTP includes Rs 10.5bn (Rs 66/sh) for standalone EPC business on 10x FY17E PAT, Rs 15bn for ACL projects (Rs 95/sh), Rs 2.4bn for balance BOT projects and Rs 2.6bn for ASBL’s land bank. Key beneficiary of pickup in road projects  As per ASBL management, ~6,000kms of road projects are expected to be awarded by Mar-15 with another 10,000kms to be awarded in FY16E. We believe that with pickup in bidding activity, we expect ASBL to garner ~Rs 15bn of fresh orders in CY15E. Equity requirement of ~Rs 10bn over FY15-18E  With ASBL looking to take up BOT projects of ~Rs 50bn over FY15-18E through ACL, ASBL will require ~Rs 15bn of equity funding of which ~Rs5bn may be funded through SBI-Macquarie and balance Rs 10bn being required by ASBL. We expect ASBL to generate ~Rs 5- 6bn of cash flows over FY15-18 with balance required to be raised through external funding.

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