Maintain BUY on Ahluwalia Contracts - Margin miss - HDFC Securities

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

Ahluwalia (AHLU) reported revenue at Rs 5.4bn (8%/23% YoY/QoQ), beating our estimate by 13%. However, EBITDA/APAT at Rs 317/147mn missed estimate by 25%/42% as higher employee cost, provisioning for expected credit loss (Rs 80mn) and higher commodity prices impacted margin (5.9% vs 8.9% est.). AHLU won new orders worth Rs 20.9bn 9MFY21, taking the order book to Rs 82bn at the end of 3QFY21. Gross debt decreased to Rs 320mn from Rs 440mn in 2QFY21. With cash balance at Rs 2bn, AHLU remains a net cash company. We have cut our FY21/FY22/FY23 estimates by 14/17/9% to accommodate potential impact on margins of higher commodity prices. We maintain BUY on AHLU with a reduced TP of Rs 388 (13x Mar-23E EPS), given its robust order book, strong balance sheet, and better RoE/RoCE than peers.

Contraction in margins overshadows execution beat: Execution recovered to pre-COVID level as Ahluwalia reported 3QFY21 revenue at Rs 5.4bn (+8/+23% YoY/QoQ, 13% beat). EBITDA margin deteriorated to 5.9% (-284/- 196bps YoY/QoQ) on higher employee cost, provisioning for expected credit loss (Rs 80mn) and higher commodity prices. Consequently, PAT came in at Rs 147mn, a decline of 31%/39% YoY/QoQ and miss of 42%. Margin would continue to be lower in 4QFY21 and will normalise in FY22. Management expects revenue to grow by 15% in FY22, which we believe is very conservative, given its robust order book and strong execution capability.

Order book remains robust at Rs ~82bn (~4x FY20): AHLU has won Rs 20.9bn of new orders 9MFY21 taking order book to Rs 82bn (Government 81%). The company has already bid for Rs 20bn of orders but is not expecting any major orders in the remainder of the year. It is also looking at hospital projects in Rajasthan and Maharashtra. For FY22, the order inflow guidance is Rs 20bn.

Balance sheet remains robust: Gross debt reduced to Rs 320mn from Rs 440mn at the end of 2QFY21. With cash balance of Rs 2bn, AHLU remains a net cash company. In a bid to clean up the balance sheet, management has provisioned Rs 138mn in 9MFY21 and will further provide Rs 60mn in 4QFY21 against expected credit losses. Net of provision, contested/delayed receivables stood at Rs 1bn at the end of 3QFY21.

Shares of AHLUWALIA CONTRACTS (INDIA) LTD. was last trading in BSE at Rs.288.5 as compared to the previous close of Rs. 308.1. The total number of shares traded during the day was 8031 in over 717 trades.

The stock hit an intraday high of Rs. 309.6 and intraday low of 286.7. The net turnover during the day was Rs. 2407908.

Source : Equity Bulls

Keywords