Maintain BUY on Ahluwalia Contracts - Significant beat on execution - HDFC Securities

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

Ahluwalia (AHLU) surprised positively on execution front (~5x our estimate), despite the shortage of labour and considerable restriction on operation in projects within city limits, as it focused on off-site execution. While revenue declined by 38/55% YoY/QoQ, APAT declined by 78%/50% YoY/QoQ. Labour availability has improved to 40% from 20% at one point of time during the lockdown. Besides, AHLU won new orders worth Rs 3bn during the quarter, taking the order book to Rs 75bn. Gross debt decreased to Rs 430mn from Rs 520mn at FY20 end. With cash balance at Rs 1.8bn, AHLU remains a net cash company. We maintain BUY on AHLU and roll forward our valuation to June-22E with target price of Rs 286 (10x June-22E EPS).

Strong execution leads to significant beat: Ahluwalia reported 1QFY21 revenue at Rs 2.5bn, nearly 5x our estimate and down 38%/55% YoY/QoQ, as the company focused on off-site execution of structural framework of some of the projects. While it focused on reducing overhead expenses, EBITDA declined by 61%/19% YoY/QoQ. Adjusting for Rs 55mn of impairment and Rs 33mn write-back of liabilities, APAT came in at Rs 93mn (down 78%/50% YoY/QoQ) against our estimated loss of Rs 396mn. The company expects additional impairment of Rs 120-150mn in the next two quarters.

Labour shortage and cash crunch at client-side could impact execution: Labour availability has improved to 40% from the lows 20% during the lockdown and sites are operating at 45% of capacity currently. Management expects labour shortage to continue for next 3-4 months which would impact execution in the near term. In the medium term, execution could slow down if payments from clients start getting delayed.

Order book remains robust at Rs ~75bn: AHLU has won a new order worth Rs 2.9bn during 1QFY21 for construction of a hospital. Basis management commentary, the hospital segment could see ordering of Rs 70-80bn in the near term. Tendering in other segments have also been healthy. However, AHLU would bid only where there is reasonable certainty of cash flow and where it is already present. Order book now stands at Rs 75 bn, of which 48% is from the hospital segment, and 25% from institutional.

Net cash status provides significant comfort: With gross debt of Rs 430mn and cash balance of Rs 1.8bn, AHLU remains a net cash company. The company incurred Capex of Rs 30mn during the quarter and has pegged Rs 100-150mn of additional Capex for the reminder of the year. With Capex intensity continuing to remain low, we expect AHLU to remain a net cash company over FY21-22E.

Shares of AHLUWALIA CONTRACTS (INDIA) LTD. was last trading in BSE at Rs.250 as compared to the previous close of Rs. 243.35. The total number of shares traded during the day was 1054 in over 69 trades.

The stock hit an intraday high of Rs. 255 and intraday low of 241.4. The net turnover during the day was Rs. 261343.

Source : Equity Bulls

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