Maintain BUY on Ashoka Buildcon - Core remains strong - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities.

Ashoka Buildcon (Q4FY20): Core remains strong. Maintain BUY
(TP Rs 141, CMP Rs 56, MCap Rs 16bn)

We maintain BUY on Ashoka Buildcon with revised TP of Rs 141/sh. Adjusting for ~Rs 1bn release of contingencies in revenue from some of the projects, ABL missed our earnings estimate by 18% on account of weak execution and lower than expected EBITDA margin. Labour availability is 50-65% as of now and sites are working at 50-65% efficiency. Tolling has reached 85% of pre-Covid-19 level within three week of resumption. NWC days improvement, low net D/E of 0.04x and comfortable liquidity insulates ABL from COVID-19 headwinds. We revise our FY21E/FY22 EPS by 6/34% and increase our TP to Rs 141/sh (vs Rs 134/sh earlier).

Weak execution and margin compression led to earnings miss: Adjusting for the one-off related to contingencies, ABL reported Rev/EBIDTA/APAT of Rs 11.5/1.3/0.9bn, missing our estimates by 16/26/18%. EBITDA margin contraction (-271/-148bps YoY/QoQ) was largely led by increase in other expenses (+420/+333bps YoY/QoQ, Rs 570mn of debtor provisioning). Management believes labor shortage will last throughout 1H due to onset of monsoon and normalize in 3-4 months. Hence, company expects 1QFY21 revenue to be 50% of 1QFY20 and FY21E Revenue to be flattish YoY. We remain conservative and build in 3% de-growth in FY21E revenue.

Order book at Rs 89bn dominated by road segment: Orderbook stood at Rs 89bn including HAM TS-3 package. ABL expects to win Rs 55-60bn of projects from prospective bid pipeline of Rs 1.1tn (700/300/100bn from NHAI/UP/Railways) once tendering activity picks up pace. Financial closure of TS-III (89% 3H land), TS-IV (64% 3H land) and Kandi project (93% 3H land) was supposed to be achieved by June'20 but got delayed and is now expected by Sep'20. These projects could start contributing to ABL topline from as early as Oct'20.

Liquidity position comfortable: At standalone level, NWC days fell to 16 days (vs 38 days at FY19 end). Gross debt was ~Rs 4bn and net debt was Rs 1.1bn at the end of FY20. While ABL has not availed loan moratorium, it has applied for release of retention money to help with cashflow. ABL will put in Rs 3bn equity in HAM projects during FY21E. On consolidated basis, ASBL had gross debt of Rs 58bn and cash of Rs 7.5bn. Company believes, ACL has sufficient cash in hand and will not require additional loss funding from parent entity for BOT projects. With resumption of tolling operation and moratorium on principle repayment, company has sufficient liquidity to service interest payments of BOT. Although ACL asset monetization process is on hold for now, we expect meaningful progress by FY21E end.

Shares of ASHOKA BUILDCON LTD. was last trading in BSE at Rs.56.4 as compared to the previous close of Rs. 53.15. The total number of shares traded during the day was 434296 in over 3411 trades.

The stock hit an intraday high of Rs. 58 and intraday low of 53.05. The net turnover during the day was Rs. 24484378.

Source : Equity Bulls

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