Emkay Global Financial Services has maintained `Buy` on Ashoka Buildcon with a price target of Rs 322 as against the current market price (CMP) of Rs 196 in its report dated Jan. 24, 2012. The broking house gave the following rationale:
3Q Earnings disappoints dragged by lower EBIDTA margins:
ABL clocked an APAT of Rs 195million v/s exp of Rs 266 million led by lower operating performance. 3QFY12 EBITDA at Rs 692 million though up 22% y-o-y was lower than our estimates (Rs 844 million) led by lower margins in both EPC & BOT segments. BOT margins were dragged by the major maintenance expenditure of Rs 65million incurred for Indore Edalabad project (VHPL) & booking of routine maintenance exp in 3Q by Bhandara SPV (as bils settled in Dec-11) leading to lower E&C EBIDTA growth. In addition, total revenues stood at Rs 3.53 billion witnessing a handsome 49% y-o-y growth, however the numbers were lower than anticipation led by lower execution at Sambhalpur project. Couple of projects already achieved full construction and are awaiting commencement of toll collection i.e. Durg, Jaora Naigon which are expected to drive traction in Q4.
Strong order inflow of Rs 4billion in power T&D - Order inflow to gain traction:
ABL received Rs 4billion of turnkey EPC contract from MSEDCL over Q3FY12 for the power T&D segment which are executable over 24 months. Existing order backlog remains handsome at Rs 43.1billion providing 3.8x visibility on FY11 construction revenues. In addition, ABL emerged L1 in a 4 laning project between Cuttack to Angul section of 112 kms on NH-42 in the state of Orissa. The project is located in the mining and metal belt and is not included in Rs 43.1 billion of outstanding order backlog. The project will offer an additional EPC opportunity of Rs10billion enhancing visibility of order book.
Earnings cut by -9//16% for FY12/13E - Retain Buy with reduced target price of Rs 322:
ABL is on the cusp of achieving traction in the largest project in its Orderbook (i.e Dhankuni Kharagpur) which comprise 45% of the existing order backlog which will lead to significant traction in the operating numbers for ABL. We have fine tuned our project execution schedule based on latest inputs on the project progress & revised our margin outlook for BOT & EPC segment which has led to -9/-16% cut in out FY12/13E earnings. Our revised SOTP fair value stands at Rs 322. With value of BOT portfolio at Rs 265 a share (CoE of 13% for operational projects, 14% for under construction project & 15% for under development projects) and E&C business at Rs 150 a share (8X its FY13E E&C earnings). Our fair value implies a 64% upside to current market price.
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