| Summary of Contents STOCK IDEA BL Kashyap & Sons
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs2,850
Current market price: Rs2,189 On a concrete footing Key points - Poised to ride construction boom: With its proven execution skills, reasonably large-scale of operations and an established customer base, BL Kashyap & Sons (BLK) is well poised to ride the construction boom in the fast-growing industrial, residential, commercial and retail segments.
- Relatively low risk strategy: Unlike most of its peers, BLK's strategy revolves around providing contractual construction services to private sector clients and it has consciously avoided exposure to long duration infrastructure projects that are prone to delays and are much more capital intensive. Thus, it does not require regular infusion of funds through debt or equity dilution.
- To sustain growth momentum: Despite its strategy to stay away from the big-ticket infrastructure projects, BLK has shown a healthy CAGR of 72.6% in its stand-alone revenues to Rs808 crore over the past three years. What's more, the strong order backlog of Rs2,100 crore (2.6x FY2007 revenues) provides a robust revenue growth outlook for the coming years. We expect the stand-alone revenues to grow at a CAGR of 48.8% over FY2007-10.
- Value in real estate subsidiary: BLK has forayed into real estate development through its subsidiary SSP, which undertakes joint development projects with the existing owners of land. Currently, it is executing six projects with saleable area of 13.2lsf (SSP's share of around 8.5lsf) and also has rights for around 150-acre land in Bikaner, Rajasthan. We have valued SSP at Rs580 crore.
- Upside of 30% from current levels: BLK's stand-alone earnings are estimated to grow at a CAGR of over 48% over FY2007-10. More importantly, given the company's limited exposure to highly capital intensive infrastructure projects, there is limited risk of equity dilution. At the current market price the stock trades at attractive valuations of 12.8x FY2009E and 9.3x FY2010E earnings (after adjusting for the value of its subsidiary: Rs554 per share). We recommend a Buy call on BLK with a price target of Rs2,850.
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