IDFC Securities - Ashoka Buildcon (ASHOKA) Ashoka Buildcons Q3FY20 results (Outperformer) - Slow execution impacts profitability

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IDFC Securities

Shirish Rane

Ashoka Buildcon's Q3FY20 results (Outperformer) - Slow execution impacts profitability

Q3FY20 result highlights

Revenue in Q3FY20 declined by 7.7% yoy to Rs9.8bn (vs our estimate of Rs12.5bn) due to delay in receiving appointed date and prolonged monsoon. Note that Ashoka Buildcon Limited (ABL) was awarded Bundelkhand Expressway of Rs10.7bn in Q3FY20 (execution started).
EBITDA margin in Q3FY20 came in at 12.6% (-132bps yoy). As a result, EBITDA declined by 16% yoy to Rs1.2bn (our estimate of Rs1.6bn).
ABL’s adjusted PAT came in at Rs856m, a decline of 16% yoy primarily due to slower execution during the quarter.
Gross toll collection during the quarter was muted at Rs2.4bn, a decline of 1% yoy due lower traffic in Jaora-Nayagaon and maintenance activity undertaken in Sambalpur National highway.
During the quarter, ABL has also received LOA for Kandi-Ramsanpalle project in Telangana (of ~Rs10bn). Currently, 95% of the land is available and the management expects to begin construction in FY21E.
Order backlog stood at Rs81bn as on Dec2019 (2.0x book to bill ratio).The order book does not include projects worth ~Rs14.5bn (awaiting appointed dates). Order inflow guidance for Q4FY20 is Rs35-40bn
Guidance Revised: ABL has revised the revenue guidance to 15% yoy growth (vs 25%-30% earlier).

Key positives: Received LOA for two projects of worth ~Rs21bn.

Key negatives: Lower Traffic growth in road assets. Revised the revenue guidance downwards to 15%

Impact on financials (Standalone): Reduce our earnings estimates for FY20E by 7% to account for slow execution in the quarter

Valuations & view

Revenue growth has suffered in 9mFY20 on delay of prolonged monsoon. However, we expect revenue growth to remain strong given the contribution from newer projects driving 16% revenue CAGR over FY19-22E on back of NHAI tendering activity, strong order backlog and two HAM projects awaiting appointed dates. ABL offers an attractive combination of strong earnings growth, low leverage & attractive valuations. ABL trades at 7x/6x FY20E/FY21E standalone earnings without adjusting for value of its assets. We value EPC business at Rs30bn or Rs105/share (10x FY20 EPS) & our overall revised SOTP based TP for ABL is Rs189 (EPC PE multiple to 10). Maintain Outperformer

24/02/2020 8 EN

Underlying

Ashoka Buildcon

Ashoka Buildcon Ltd.. Ashoka Buildcon Limited is an India-based infrastructure development company. The Company is engaged in construction and maintenance of roads, and supporting services to land support-operation of toll roads and others. The Company operates through three segments: Construction and Contract related activities; BOT Projects, and Sales of Goods. Its Construction and Contract related activities segment consists of execution of engineering and construction projects to provide solutions in civil and electrical engineering (on turnkey basis or otherwise) to core/infrastructure sectors. The Company's BOT Activity relates to execution of projects on long-term basis comprising developing, operating and maintaining the infrastructure facility. The Sales of Goods segment includes the activity of selling of ready mix concrete (RMC), plain cement concrete (PCC) poles, software and bitumen. The Company has projects under construction in the States of Tamil Nadu, Karnataka, Odisha and West Bengal.

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INE442H01029 National Stock Exchange of India India

Provider

IDFC Securities

IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.

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Analysts

Shirish Rane

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