IDFC Securities - Ashoka Buildcon (ASHOKA) Ashoka Buildcons Q2FY18 results (Outperformer) - Weak execution a blip; strong recovery ahead

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IDFC Securities

Deepak Jain

Ashoka Buildcon's Q2FY18 results (Outperformer) - Weak execution a blip; strong recovery ahead

Q2FY18 result highlights

Ashoka Buildcon’s (ABL) Q2FY18 earnings were below estimate due to loss of ~Rs2bn revenue during the quarter in its Bihar T&D and the Eastern Peripheral Expressway (EPE) projects. PAT declined 27.9%yoy to Rs327m (est: Rs362m).
Revenue declined 14.5%yoy to Rs3.8bn, sharply below our estimate of Rs5.2bn. Execution in Power T&D projects in Bihar was impacted due to floods and delay in finalization of procurement contracts post GST implementation. Execution in the EPE project was impacted for 1.5 mths during Q2FY18 due to protests by local landowners who were demanding higher compensation. With these problems now resolved, ABL is confident of recouping the lost revenue in H2FY18. Order backlog as on Sep-17 was up 10.7%yoy at Rs61.1bn.
EBITDA declined 27.5%yoy to Rs506m (est: Rs638m) and EBITDA margin declined 240bp yoy to 13.4% on a higher base (flat qoq).
Effective tax rate was lower at 11.2% (est: 25%) as against 21.6% in PY due to benefit of 80IA on eligible projects (taken for 1HFY18).
Traffic growth (yoy) remained strong, especially in the Eastern India projects: Belgaum; 13%, Dhankuni; 12.3%, Sambalpur; 11.5%, Bhandara; 3.4%, Durg; 3.7% and Jaora; 11.2%.
Standalone debt declined Rs100m qoq to Rs1.4bn. Consolidated gross debt went up marginally qoq from Rs44.5bn to Rs44.9bn.
FY18 guidance: Order inflow of Rs30-40bn, revenue growth of 20-25%, EBITDA margin of ~13%, capex of ~Rs450m and tax rate of ~21%.

Key positives: Stable debt and working capital position.

Key negatives: Loss of revenue due to disruptions and nil order inflow.

Impact on financials (Standalone): No change in standalone earnings.

Valuations & view

Revenue contribution from newer projects is picking up pace and we expect a solid recovery from Q4FY18 onwards driving 19.3% revenue CAGR over FY18E-20E (15.6% CAGR in EPS). A strong execution track record and well-capitalized balance sheet (consolidated net D/E of 2.2x in FY17) are ABL’s key strengths. ABL offers an attractive combination of strong earnings growth (19.2% pre-tax CAGR over FY18E-20E), low leverage and attractive valuations. ABL trades at 10.9x/9.3x FY19E/FY20E standalone earnings adjusted for Rs100/sh value of its assets. We maintain our Outperformer rating with a SoTP based target price of Rs312

07/12/2017 7 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

Deepak Jain

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Event update: Aurobindo Pharma (Outperformer) - Unit IV receives EIR; positive outcome

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