Buy Ahluwalia Contracts (India): AnandRathi Institutional Research

Ahluwalia Contracts (India) - Growth momentum to continue; Buy with a target price of Rs 860

On the back of its proven execution capabilities, healthy order backlog and altered strategy to shift to government contracts, Ahluwalia Contracts is likely to report strong revenue growth in the next two years. We estimate a 24%/31% CAGR in revenue/PAT over FY16-18. In FY16 it bagged orders of Rs. 12bn, expected to be reflected in strong growth over FY16/18.

Revenue growth accelerates. Ahluwalia's Q2 FY16 revenue jumped 17% yoy; its H1 FY16 revenue rose 14% yoy, driven by strong execution and regular orders. It is now focusing on speedy execution and timely completion and expects 20-25% yoy revenue growth in the next two years, supported by orders from the public sector.

Strong margin betterment. The EBITDA margin rose 56bps yoy, to 12.5%. The continuous expansion stemmed from reducing low-margin orders. We expect the EBITDA margin over the next two years to hold above 13% following the robust orders in FY15 and H1 FY16.

Orders in FY16 continue to be strong. For this fiscal the company is aiming at fresh orders of ~Rs. 20bn. Of this, it has already bagged orders of ~Rs. 13.6bn, taking its order book to ~Rs. 41.3bn (including orders of Rs. 1.2bn in November). At present, it is L1 for projects valued at ~Rs. 2bn and the projects-bid pipeline amounts to ~Rs. 10bn. Ahluwalia is experiencing less competitive intensity and huge order inflows from the new redevelopment orders in the NCR.

Leaner balance sheet. Gross debt amounts to ~Rs. 1.35bn, which it intends to reduce to ~Rs. 1bn by next year. The company aims to be working-capital negative by FY17-end.

Valuation. The better operating performance and low gearing have led to better return ratios up into the higher twenties. We maintain a Buy rating, with a price target of Rs. 340, based on 14x FY18e PE. Risk: Any major liability arising out of litigation.

Shares of AHLUWALIA CONTRACTS (INDIA) LTD. was last trading in BSE at Rs.245.4 as compared to the previous close of Rs. 246.5. The total number of shares traded during the day was 255 in over 17 trades.

The stock hit an intraday high of Rs. 245.4 and intraday low of 240. The net turnover during the day was Rs. 61820.

Source : Equity Bulls

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