MOSL: ASHOKA BUILDCON (Buy)-Revenue growth strongest among peers-debt reduction – a positive surprise
ASHOKA BUILDCON: Revenue growth strongest among peers; debt reduction – a positive surprise
(ASBL IN, Mkt Cap USD0.5b, CMP INR119, TP INR175, 47% Upside, Buy)
- Strong performance in a challenging environment: Revenue grew 30% YoY in 1QFY20, which is commendable in a challenging operating environment (liquidity crunch and slowdown amid the election period of around two months). We note that ASBL's revenue growth was strongest among our coverage universe companies. The key positive surprise was the sequential decline in interest expense to INR214m, attributable to a fall in gross debt by INR1.4b. Overall, net profit grew 23% YoY to INR647m (in-line).
- Dependency on new ordering might increase at such high execution rate: While we appreciate ASBL's superior execution capability, we note that new ordering is now emerging as key for revenue momentum to sustain. Current order book stands at INR81.7b (OB/rev: 2.2x), down 24% YoY from INR108b (OB/Rev: 4.8x) in the year-ago period. Moreover, the appointed date is pending in two HAM projects, forming 17% of the order book. Thus, we expect revenue momentum to slow down hereon and build in 12% growth for FY20 v/s management's guidance of 30%. Also, we have not included the newly L1 HAM project (Tumkur - Shivamoga Pkg 4) as there might be a delay in final awarding from the NHAI's side. We forecast EPC revenue CAGR of 14% over FY19-21. New orders form just 17% of our cumulative revenue estimate over the next two years and there might be an upside risk to our estimates in case NHAI awarding gathers steam again.
- Valuation view: Adjusted for the asset business, the EPC business trades at FY20/21E P/E of 6.2x/5.6x. While the pending exit of the PE investor in the asset business is an overhang on the stock, we believe that this provides an attractive entry point in the stock. We derive an SOTP-based TP of INR175 based on (a) EPC business at target FY21E P/E of 10x and (b) DCF valuation of BOT/HAM projects. Maintain Buy.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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