Initiating Coverage: Vascon Engineers Ltd - BUY - TP Rs.60 - Kotak

- Vascon Engineers Ltd (VEL) has presence in construction and development of residential and commercial real estate projects with a history of over 25 years. After having a rough patch between FY13 to FY15, the company has embarked on a decisive restructuring exercise. We feel the company could be a good turnaround story in FY19E with focus on affordable housing in both its EPC and real estate business. The four pronged strategy of turnaround are: 1) Focus on increasing the order book of EPC business. The company has capability to execute 8 mn sq ft of projects/Rs.10 bn in value p.a. as compared to potential revenue of ~Rs.3 bn in FY18E. It has already increased its EPC order book from Rs. 5.2bn in Mar'17 to Rs.7.2 bn at the end of H1FY18; 2) Reviving the real estate business under the new CEO of Real estate division, by focusing on affordable housing in a big way; 3) Liquidation of non-core investments to the tune of ~Rs.2 bn in its subsidiaries & other businesses to fund future growth plans; and 4) Exiting loss making services business in its 85% held subsidiary called GMP Technical Solutions. This has the potential to swing PBT by Rs.100-150 mn between FY17 to FY19E. On an overall basis, we expect company's revenue and earnings to grow a CAGR of 26% and 231%, respectively between FY17-20E. We expect 1257 bps improvement in EBITDA margins in FY17-20E. Based on detailed working of individual businesses, we arrive at a SOTP price target of Rs.60. We initiate coverage on the stock with a BUY recommendation.

Shares of Vascon Engineers Ltd was last trading in BSE at Rs.46.4 as compared to the previous close of Rs. 41.05. The total number of shares traded during the day was 2956412 in over 11575 trades.

The stock hit an intraday high of Rs. 47.7 and intraday low of 41.4. The net turnover during the day was Rs. 133955531.

Source : Equity Bulls

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