Supreme Infrastructure - Growth to continue; Buy - Anand Rathi

Strong order book drives revenues. We expect Supreme Infrastructure's revenue in 3QFY14 to have grown 2.4% yoy (81% qoq), following strong execution in its road and buildings projects. Its order book in Sep'13 (including L1 projects of Rs. 12.5bn) was Rs. 65bn (3.3x TTM revenue). Conversion of L1 orders and fresh order inflows would be positive triggers for the stock. In 1HFY14, the company bagged orders of Rs. 12.2bn. Healthy margins to continue. For the quarter, we expect the company to register a 15% EBITDA margin vs 15.8% in the previous quarter and 17.3% in the year-ago quarter. Given the high interest cost, we expect it to record a 5.5% net profit margin.

Update on BOT road projects. For ten BOT road projects, the company has an equity commitment over FY12-15 of ~Rs. 8.9bn. Of this, it has infused Rs. 5.72bn through investment, advances and debt at the hold-co level; ~Rs. 3.1bn is to be infused by 3i India Infra Fund (of which Rs. 2bn has already been received), the rest will be invested over FY14-15. The last tranche from 3i has not yet been received and is awaiting certain NHAI clearances. The proportion of BOT projects, 23% of the order book, is now being reduced.

Our take. Considering the pickup in execution in its road projects, the company could register 2% yoy revenue growth in 3QFY14. We expect a 15% EBITDA margin and a 5.5% net profit margin. Conversion of its L1 orders to order book, together with reduced debt, would be the key monitorable during the quarter. Our sum-of-parts target of Rs. 360 is based on 4x PE of the FY14e construction business (Rs. 304, a 50% discount to midcap target multiples) and 0.8x Mar'13 P/BV (Rs. 56). Risk. Rise in interest rates.

Source : Equity Bulls

Keywords