IVRCL Q3FY2010 Results Update ; Andhra Pradesh exposure impacts performance ; BUY ; Target: Rs 399
IVRCL Infrastructure & Projects
Andhra Pradesh exposure impacts performance
BUY
CMP: Rs 308 Target Price: Rs 399
IVRCL Q3FY10 results are below our expectations. Revenue for the quarter at Rs11.8bn declined by 0.5% yoy on account of continued political turbulence in the state of AP ( AP order book at Rs48.5 bn accounting for 28% of the total order backlog), on account of separation of the Telangana district from the state. EBIDTA margins expansion of 65 bps (Margins at 9.6%) helped EBIDTA growth of 6.8% yoy. Robust order inflows of Rs41 bn (+142% yoy) meant a healthy 22.4 jump in backlog to Rs175 bn (excluding orders worth Rs45bn in which it is the lowest bidder).Management highlighted that on account of continued political turbulence in the state of AP, the irrigation and water segment has seen sharp deceleration in execution. The execution is unlikely to pick up till the issue of separation of the Telangana district from the AP state is resolved. Consequently the management has lowered its guidance of from Rs65 bn to Rs58-60 bn. However it reiterated that the company would deliver EBIDTA margins of 9.5%+. We are downgrading our FY2010 earnings estimate by 12% (EPS of Rs16.5) and by 14% for FY2011 (EPS of Rs20.7).
Though IVRCL is currently facing headwind in term of execution, we believe that the situation is likely to change with AP turning back to political stability. We believe that eventually strong fundamentals like robust order back log of Rs22 bn (~4 X FY21010 E revenues) and strong earnings traction (CAGR of 29% over FY10E-2012E period) would fuel stock performance. IVRCL's current portfolio of 9 BOT projects and a much stronger pipeline should also support stock performance. Given this backdrop, current valuations of 14.9x FY2011 earnings are reasonably attractive. Maintain BUY, with a revised price target of Rs399.
Regards,
Ajit Motwani
Emkay Global Financial Services Ltd.
Member: Bombay Stock Exchange. Member: National Stock Exchange of India.
Paragon Center, H – 13 - 16, 1st Floor,
Opp. Century Mills, Pandurang Budhkar Marg,
Worli, Mumbai - 400 013.
Tel: 6612 1255
Fax: 6624 2410
E-mail : ajit.motwani@emkayglobal.com
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