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Initiating Coverage
Institutional Equities
IVRCL Infrastructure
Reuters: IVRC.BO Bloomberg: IVRC IN
Project Execution To Gain Momentum
IVRCL Infrastructure, a well established construction company with an order
backlog of Rs230bn, which is 3.8x FY11revenue, provides strong revenue
visibility. Project execution is poised to pick up from 2HFY12, driven by
commencement of billing in three new projects, increase in shorter execution
cycle projects in total order book and increase in sub-contracting post stability
in interest rates, which will drive 17% yoy revenue growth and 32% yoy earnings
growth during FY13. The company is also in advance stage of talks for sale of
stake in the special purpose vehicle of IVRCL Assets & Holding (IVRCLAH) and
monetisation of real estate, which would ease funding needs. We assign a Buy
rating and a target price of Rs59 to the stock based on SOTP valuation.
Order backlog at 3.8x; strong revenue visibility: Despite decline in order inflow by
45% during FY11, the company has diversified order book of Rs230bn comprising
38% water and irrigation projects, 22% building projects, 29% road projects and 11%
oil and power projects. This works out to 3.8x of order book-to-bill (BTB) ratio on FY11
revenue, which provides strong revenue visibility for next three years. Based on prequalification
and a track record in order inflow, the order backlog is estimated to show
a CAGR of 17% in the next two years to Rs 296bn by the end of FY13.
Execution rate poised to improve: We expect project execution to pick up from
2HFY12, driven by commencement of billing in three new projects, increase in shorter
execution cycle projects and the rise in sub-contracting post stability to interest rates,
which will drive revenue up 17%yoy and earnings 32% yoy during FY13.
Stake sale of SPV or land monetisation to ease liquidity: BOT projects under
construction require cumulative equity contribution of around Rs10bn by IVRCLAH
over the next two-three years. The company is in advanced stage of talks for
monetisation of land assets and dilution of stake at the SPV level to meet the equity
requirement. We believe this would ease the company’s liquidity situation.
Attractive valuation: We assign a Buy rating and a target price of Rs59 to the stock
based on SOTP valuation. During the past one year, the stock has corrected by
around 78% and is currently trading at a one-year forward PE ratio of 6x and a P/BV of
0.5x, near its historical low touched during the Lehman crisis, which is not justified.
We have valued the core construction business at a PE multiple of 8x, which is on the
lower side of historical PE multiple, contributing Rs52 to our TP. The company has two
subsidiaries, IVRCLAH and Hindustan Dorr Oliver (HDO), which are valued at a 25%
discount to their market price.
Y/E Mar (Rsmn) FY09 FY10 FY11 FY12E FY13E
Net sales 48,819 54,929 56,515 63,748 74,998
YoY (%) 33.4 12.5 2.9 12.8 17.6
EBITDA 4,218 5,319 5,146 5,487 6,585
EBITDA margin (%) 8.6 9.7 9.1 8.6 8.8
Net profit 2,260 2,111 1,579 1,350 1,777
YoY (%) 7.4 (6.6) (25.2) (14.5) 31.6
EPS (Rs) 8.7 7.9 5.9 5.1 6.7
PE ratio (x) 4.2 4.7 6.3 7.3 5.6
P/BV (x) 0.5 0.5 0.5 0.5 0.4
RoCE (%) 10.5 11.8 9.6 9.0 9.9
RoE (%) 13.7 11.5 8.2 6.6 8.1
Source: Company, Nirmal Bang Institutional Equities Research
26 September 2011
BUY
Sector: Infrastructure
CMP: Rs38
Target Price: Rs59
Upside: 55%
Amit Srivastava
amit.srivastava@nirmalbang.com
+91-22-3926 8116
Nitin Arora
nitin.arora@nirmalbang.com
+91-22-3926 8169
Key Data
Current Shares O/S (mn) 267.0
Mkt Cap (Rsbn/USbn) 10.0/0.20
52 Wk H / L (Rs) 174/31
Daily Vol. (3M NSE Avg.) 5,195,842
Share holding (%)
3QFY11 4QFY11 1QFY12
Promoter 9.5 9.5 935
FII 57.9 51.2 49.3
DII 5.3 5.6 4.0
Corporate 15.6 18.8 20.8
General Public 11.7 14.9 16.5
One Year Indexed Stock Performance
Price Performance (%)
1 M 6 M 1 Yr
IVRCL 1.6 (49.3) (77.8)
Nifty Index (1.6) (11.2) (18.3)
Source: Bloomberg