BUY Ahluwalia Contracts (India) - AnandRathi Institutional Research

Ahluwalia Contracts (India) - Moving toward a high-growth trajectory; Buy with a target price of Rs 344

Ahluwalia Contracts posted a strong set of figures for Q3 FY16 bolstered by its robust order backlog coupled with better execution. The EBITDA margins have risen for three consecutive quarters, to 12.4%. We expect the strong revenue growth and better margins to drive its growth. We maintain our Buy rating, with a price target of Rs. 344.

Strong revenue growth. Ahluwalia's Q3 FY16 revenue jumped 19.8% yoy; its 9M FY16 revenue rose 16.1% yoy, driven by strong execution. We expect ~25% yoy revenue growth in the next two years, supported by orders from the public sector and its focused execution.

Margins gaining traction with shift in order mix. The EBITDA margin rose 295bps yoy, to 12.4%. The continuous expansion stemmed from reducing low-margin orders and the change in order mix toward government contracts (58%). We expect the EBITDA margin over the next two years to hold at ~13% following the robust orders in FY15 and in 9M FY16.

Healthy order-backlog. For this fiscal, the company is aiming at fresh orders of ~Rs. 16bn. Of this, it has already bagged orders of ~Rs. 13.6bn, taking its order book to ~Rs. 38.3bn (3.2x TTM revenues). Ahluwalia is experiencing less competitive intensity and huge order inflows from the new redevelopment orders in the NCR.The projects-bid pipeline amounts to Rs. 20bn. It is aiming at fresh orders of ~Rs. 2.5bn in Q4 FY16 and ~Rs. 20bn in FY17, backed by a constructive bid pipeline and vast coming tendering opportunities.

Valuation. The better operating performance and low gearing have led to better return ratios, up into the higher twenties. We expect the strong revenue growth and improvement in margins to drive growth for Ahluwalia Contracts. We maintain a Buy rating on the stock, with a price target of Rs. 344, based on 15x FY18e PE. Risk: Any major liability arising out of litigation.

Shares of AHLUWALIA CONTRACTS (INDIA) LTD. was last trading in BSE at Rs.227.5 as compared to the previous close of Rs. 228.2. The total number of shares traded during the day was 1961 in over 59 trades.

The stock hit an intraday high of Rs. 228 and intraday low of 215.8. The net turnover during the day was Rs. 433963.

Source : Equity Bulls

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