MOSL: ASHOKA BUILDCON (Buy)-Satisfactory progress on HAM projects

ASHOKA BUILDCON: Satisfactory progress on HAM projects; EPC business to register 36% CAGR over FY18-20E

(ASBL IN, Mkt Cap USD0.4b, CMP INR111, TP INR160, 45% Upside, Buy)

• EPC business on track to deliver 30% growth for FY19: Ashoka Buildcon’s engineering procurement construction (EPC) execution has seen a muted start in FY19 (revenue decline of 3% YoY in 1QFY19), given the early onset of monsoons and lower availability of projects for execution. Ashoka Buildcon (ABL); however, is maintaining its 30% revenue growth target for FY19, given the progress it has witnessed on the new Hybrid Annuity Mode (HAM) projects (EPC order book of INR42b) on the financial closure front, and on momentum pick-up in the existing EPC order book. EPC execution is expected to pick up momentum from 2HFY19 as the recently won HAM projects should receive an appointed date by end-1HFY19, and heavy monsoon in 2QFY19 has restricted execution of the existing order book.
• ABL on track to achieve timely financial closure for all the recently won HAM projects: Of the recently won five HAM projects, ABL has achieved financial closure for three projects. For the fourth project, it expects to receive financial closure by end-2QFY19, and for the fifth project in Gujarat (Ankleshwar to Manubar section) financial closure is expected by October 2018. For the three HAM projects, ABL has been able to tie up the debt at 9.5% cost of borrowing. Financial closure has been supported by private banks (Axis, ICICI, HDFC Bank and Aditya Birla Capital) where the lending norms are water-tight with covenants like: a) disbursement post 80% land availability, b) 30% upfront equity commitment of the total equity infusion to be done, and c) disbursement to begin post 8-10 months of appointed date.