Institutional Equities - Online Share Trading

Institutional Equities
Investment Arguments
Order book/bill at 3.8x; strong revenue visibility
IVRCL Infrastructure has an order book of Rs230bn (including L1 orders of Rs23bn and adjusted for
cancellation of Rs19bn order from Saudi Arabia due to no work progress), which comprises 38% water and
irrigation projects, 22% building projects, 29% transportation projects and 11% power and oil projects. This
works out to 3.8x of its order book-to-bill (BTB) ratio on FY11 revenue, which provides strong revenue visibility
for the next three years. During FY04-11, the order book showed a CAGR of 45%, but looking at macro factors
and short-term hiccups in the award of projects; we expect the order backlog to show a CAGR of 17% in the
next two years, to Rs296bn by FY13 (primarily focusing on EPC and BOT segments of road and water projects
in Tamil Nadu and overseas projects).
Exhibit 5: Order inflow trend
(Rsbn) (%)
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FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12E FY13E
Closing order book (Rsbn) Order inflow (Rsbn) Growth (YoY %)
Source: Company, Nirmal Bang Institutional Equities Research
Key highlights of order book
The company has order backlog of Rs230bn, of which around Rs45bn worth of orders are captive. This
gives certainty to a large extent regarding project execution on time.
The company is pre-qualified for Rs200bn of orders and is expecting pre-qualification for incremental
around Rs100bn of orders.
Saudi Arabia order worth Rs19bn has been deleted from the order backlog due to delay in progress of the
project.
Andhra Pradesh contributes around Rs28bn to the order book, where execution of the project has
improved (execution was slow in the past due to delay in payment).
Order book mix biased toward shorter execution cycle projects
During FY02-09, the order-book mix was biased toward the water segment, which was in the range of 57-69%.
At the end of FY10, around 45% of order inflow was from the road segment, which has increased the
transportation segment’s contribution from 5% in FY09 to 31% in FY10, while the water segment’s contribution
fell to 45% from 69%. During FY11, the contribution of water segment further declined to 38%, transportation
segment slightly declined to 29%. Transportation segment orders are primarily captive orders where payment
delay risk is lower and execution cycle is shorter. Historically, whenever there is a significant increase in the
transportation segment’s order book, revenue growth follows with a lag of one year. Hence, we believe project
execution will pick up during 2HFY12, driven by increased contribution from shorter execution cycle orders.
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(20)
81 IVRCL