Institutional Equities - Online Share Trading
Institutional Equities - Online Share Trading
Institutional Equities - Online Share Trading
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<strong>Institutional</strong> <strong>Equities</strong><br />
Valuation at historical bottom<br />
We assign a Buy rating and a target price of Rs59 to the stock based on SOTP valuation. The core<br />
construction business is valued at a PE ratio of 8x, which is at the lower side of historical PE multiple and<br />
contributes Rs53 to our target price. IVRCL Infrastructure has two subsidiaries - IVRCLAH and Hindustan Dorr<br />
Oliver (HDO) - valued at a 25% holding discount to their market price. At the current market price of Rs.38,<br />
IVRCL Infrastructure is trading at a PE multiple of 6x and EV/EBITDA multiple of 5x FY13 earnings. We<br />
believe the stock is providing a good investment opportunity for investors.<br />
Exhibit 1: SOTP valuation<br />
Segment Basis Multiple (x) Value (Rsmn) Value per share (Rs)<br />
Core construction FY13E, PE (x) 8.0 13,861 53<br />
IVR prime CMP 25% 1,321 3<br />
HDO CMP 25% 627 3<br />
Total fair value - - - 59<br />
Source: Company, Nirmal Bang <strong>Institutional</strong> <strong>Equities</strong> Research<br />
<strong>Trading</strong> at near historical low P/B, PE<br />
Historically, IVRCL Infra has traded at a five year average PE of 22x and P/BV of 2.2x. During the past one<br />
year, the stock has corrected by around 78% on concerns over rising interest rates, lack of order inflow and<br />
decline in profitability. It is currently trading at a one-year forward PE of 6x and P/BV of 0.5x on FY13 earnings,<br />
near its historical low touched during the Lehman crisis, which is not justified. Hence, we have valued the core<br />
business at 8x, which is in the lower range of its EPC construction business.<br />
Exhibit 2: P/BV trend<br />
(x)<br />
5.0<br />
4.5<br />
4.0<br />
3.5<br />
3.0<br />
2.5<br />
2.0<br />
1.5<br />
1.0<br />
0.5<br />
0.0<br />
Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11<br />
Exhibit 3: PE ratio trend<br />
(x)<br />
40<br />
35<br />
30<br />
25<br />
20<br />
15<br />
10<br />
5<br />
0<br />
Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11<br />
P/B<br />
5Y average<br />
P/E<br />
5 year avg<br />
Source: Bloomberg, Nirmal Bang <strong>Institutional</strong> <strong>Equities</strong> Research<br />
Source: Bloomberg, Nirmal Bang <strong>Institutional</strong> <strong>Equities</strong> Research<br />
Exhibit 4: EV/EBITDA trend<br />
(x)<br />
25<br />
20<br />
15<br />
10<br />
5<br />
0<br />
Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11<br />
EV/EBITDA<br />
5 year avg<br />
Source: Bloomberg, Nirmal Bang <strong>Institutional</strong> <strong>Equities</strong> Research<br />
80 IVRCL
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