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Research
IVRCL Ltd. - KJMC Capital Market
Posted On : 2012-05-17 11:20:45( TIMEZONE : IST )
IVRCL Q4FY12 standalone result was below our expectation on execution delays. The revenue for Q4FY12 fell by 22.2% yoy on execution delays in 3-4 projects. The execution delays caused revenue loss of Rs 5-5.5 bn in 12 month ended March 2012. Execution took a hit on various hurdles like legal & environmental issues, slower decisions, design issues, etc related to those four contracts. EBITDA margin took a hit with 227 bps yoy decline at 6.3% on provisions against debtor and lower revenue bookings. The PAT for the quarter declined by 92.3% yoy to Rs 49.4 mn. IVRCL has an order backlog of Rs 278bn (including Rs 54 bn of L1 order) at the end of the quarter.
Key Highlights
Execution worsen in Q4FY12: The execution continued to remain subdued in Q4FY12 with net revenue declined sharply by 22.2% on yoy basis to Rs 15.96 bn. Execution took a hit on various hurdles like legal & environmental issues, slower decisions, design issues, etc related to four contracts. This has caused annual revenue loss of over Rs 5-5.5 bn. We believe that the execution may remain weak in next few quarters also. But looking at the strong order book and a low revenue base in FY12E, we expect 12% revenue growth in FY13E.
EBITDA margin declined by 227 bps on yoy: During the quarter, IVRCL has reported 227 bps yoy and 101 bps qoq decline in the EBITDA margins on account of Rs 500 mn provisions against debtors and lower execution. As a result the EBITDA for the quarter declined by 42.8% yoy to Rs 1010mn. The interest cost for the quarter remained flattish on yoy and qoq to Rs 661 mn. The debt at the end of the quarter remained unchanged at Rs 25 bn over Q3FY12. The PAT for the quarter declined by 92.3% yoy to Rs 49.4 mn.
Order book grew to Rs 278 bn: IVRCL has reported a robust Rs 278 bn of order backlog at the end of the quarter which also includes Rs 54 bn of L1 orders. The order inflow for 12 months ended March 2012 was at Rs 107 bn. The order book composition included Rs 71.29 bn of own BOT projects.
Order backlog gives visibility, but execution delays continue to worry: The execution rate in 12 month ended march 2012 was 22.5% of the order backlog at the beginning of FY12. Going by the same, the current order backlog gives a strong revenue growth visibility in FY13. But looking at delays in execution by the company, we remain conservative in terms of making revenue growth estimates and expect the execution rate to reduce further to 20%.
Update BOT Business: IVRCL has sold 3 out of four land parcel in Noida for Rs 2 bn. The company expects to generate another Rs 1 bn from the sale of fourth parcel. The proceeds would be utilized to meet equity requirement in BOT projects. In FY13 it would need Rs 4.4 bn of equity commitment in the BOT projects. The process of merging BOT subsidiary, IVRCL Assets is on track and the same is expected to be completed in 4-6 weeks. The company has extended the financial year FY12 by 3 months in order to report the merged account for FY12.
Outlook & Valuation
In the recent past the stock was in momentum on expectation of possible hostile takeover by Essel group. Essel group recently acquired 12.3% stake in the company from open market. But further it clarified about not going for hostile takeover in the current circumstances. As a result, the stock got corrected to Rs 47 after touching a high of Rs 74. Any further development related to substantial stake acquisition by Essel group may result in stock price momentum, but it would be irrespective of fundamentals.
The company has extended the financial year FY12 by 3 months in order to report the merged account for the full year. Currently we have continued with our yearly projections and would review the same once it reports its financial year ending accounts in the next quarter. We have downgraded our revenue and earning estimates for FY13E factoring in the impact of delay in execution and lower margins. Based on FY13E and FY14E revised EPS of Rs 2.2 and Rs 4.1, the stock is currently trading at a P/E of 21.8x and 11.5x respectively. Considering downgrade in earnings, we reduce our SOTP based target price to Rs 48 (from Rs 63) and maintain our Hold rating on the stock.
