Supreme Infrastructure - Strong show continues; Buy - Anand Rathi

Supreme Infrastructure's (Supreme) revenue grew an impressive 34% yoy in 2QFY13. EBITDA margin, at 17.5%, was higher than our expectations. The company bagged orders worth Rs.12.9bn in 1HFY13, taking its order book to Rs.44.4bn (including L1 orders of Rs.13.7bn). We retain a Buy, with price target of Rs.436.

Revenues, margin sound. Revenue grew 34.3% yoy (down 20% qoq), slightly below our estimates. EBITDA margin improved 140bps qoq, to 17.5% (down 90bps yoy), higher than our estimates. Management expects to maintain EBITDA margin at 15-17% over FY13-14. On the back of strong EBITDA margins, PAT growth was above expected at 29.7% yoy. Net gearing remains at 1.8x.

Impressive orderbook. Supreme's order book (including L1 projects of Rs.13.7bn) stands at Rs.44.4bn (2.6x TTM revenue). Roads & Bridges (46%) and Buildings (45%) continue to dominate the order book. Order inflow during 1HFY13 stood at Rs.12.9bn. For full year, the company targets order inflow of ~Rs.25bn.

BOT projects update. For 10 BOT road projects, Supreme has equity commitment of ~Rs.7.65bn over FY12-15. Of this, it has infused Rs.3.8bn through investment, advances and debt at the hold-co level; ~Rs.3.1bn is to be infused by 3i India Infra Fund (of which, it has already received Rs.2bn), and remaining will be invested over FY12-15. BOT projects comprise 30% of the orderbook. Its Manor-Wada road project is likely to become operational by Dec-13. The company expects to raise Rs.2.0-2.5bn by securitizing cash flows of this project and pay off some of its debt.

Valuation. Our sum-of-parts-based price target of Rs.436 is based on 5x PE the FY14e construction business (Rs.366, a 45% discount to midcap target multiples) and 1x P/BV Mar'12 (Rs.70).

Risk: Rise in interest rates.

Source : Equity Bulls

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