BUY Ashoka Buildcon: AnandRathi Institutional Research

Ashoka Buildcon - Going strong; Buy with a target price of Rs 229

Ashoka Buildcon's Q3 FY16 revenue performance came as we expected, but the EBITDA margin of the BOT-toll segment positively surprised, leading the company to beat our earnings estimates.

Floods / rains constrain EPC revenues; BOT drives growth: As expected, restricted construction activity at the Chennai annuity project (floods) and the KSHIP annuity project (rains) contained the EPC segment's revenue growth to ~22% yoy. However, continuing traffic-growth momentum and more operational projects ensured toll income recording strong, ~69% yoy, growth, driving overall revenue up ~33% yoy. There appears to be a qoq drop but it could be largely attributed to land sale in Q2 FY16. Adjusted for this, revenue was flat.

BOT margins surprise positively: Gradually stabilising operations at operational road assets resulted in the BOT segment clocking its highest margin (~74%) in the last eight quarters. The better EBITDA margin of the BOT segment augured well as it could cover the weak EPC margin (owing to the higher proportion of power T&D EPC) and help deliver healthy earnings.

Other highlights: a) Q3 turned out to be sixth consecutive quarter of double-digit comparable growth in toll collection, b) a ~Rs. 1.8bn increase in working-capital loans pushed net debt up ~Rs. 0.9bn; yet, net debt-to-equity was a comfortable ~1.6x, c) the higher debt could be attributed to inventory build-up in the Power T&D EPC; billing milestone some time away, d) value-accretive stake acquisition in Jaora-Nayagaon; group holding rises to ~48% from ~23% earlier and e) on refinancing, finance cost for Jaora-Nayagaon down 150bps; efforts underway for other projects.

Valuation: We raise our earnings estimates ~8% / 21% / 19% for FY16 / FY17 / FY18 to largely factor in the greater stake in Jaora-Nayagaon. On our revised estimates, the stock trades at PBV of 1.9x FY17e and 1.8x FY18e. We maintain a Buy for in-place growth capital, healthy book-to-bill visibility, proven execution abilities and steady traffic growth. These, we believe, would lead the company to scale new highs. Risk. Any significant delay in re-commencement of mining would not be good for Ashoka's road assets in the mining belt.

Shares of ASHOKA BUILDCON LTD. was last trading in BSE at Rs.193 as compared to the previous close of Rs. 191.3. The total number of shares traded during the day was 7637 in over 209 trades.

The stock hit an intraday high of Rs. 194.2 and intraday low of 188.6. The net turnover during the day was Rs. 1466597.

Source : Equity Bulls

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