Maintain BUY on Ahluwalia Contracts - Execution-led beat - HDFC Securities

Mr. Parikshit D Kandpal, CFA, HDFC Securities and Mr. Chintan Parikh, Institutional Research Analyst, HDFC Securities

Ahluwalia Contracts (AHLU) reported revenue/EBITDA at INR 7.6bn, beating our estimates by 39/36%. However, higher-than-expected finance cost narrowed APAT beat to 23%. Credit loss provision of INR 340mn during the quarter impacted margins. Labour availability has improved after falling by 30% during April/May-21. Management has guided for 10-15% revenue growth, 11-12% EBITDA margin and INR 25bn order inflow in FY22. We have raised our FY22/FY23 estimates by 20/16% to account for pick-up in execution of a strong order book (OB) of INR 76bn. We maintain BUY on AHLU with an increased TP of INR 450/sh (13x Mar-23E EPS, unchanged P/E), given its robust order book, strong balance sheet, and better RoE/RoCE than peers.

Execution-led beat; margin impacted by provisioning: AHLU reported revenue at INR 7.6bn (39/42% YoY/QoQ), 39% ahead of estimate on strong execution. EBITDA came in at INR 0.7bn (204/120% YoY/QoQ, 36% beat). EBITDA margin expanded by 498bps/326bps YoY/QoQ to 9.2% (vs 9.3% estimate). Sans INR 340mn credit loss provisioning, EBITDA/EBITDA margin comes at INR 1bn/13.6%. Higher-than-expected interest expense of INR 156mn led to APAT of INR 371mn (6x/2.5x 4QFY20/3QFY21, 23% beat). Management expects revenue to grow by 10-15% in FY22, which we believe is very conservative, given its robust OB (3.8x FY21 revenue) and strong execution capability. 1QFY22 revenue would be around INR 5bn. Margin is expected to be in the 11-12% range as 80% of OB has escalation clause.

INR 25bn inflow targeted; cautious stance on residential real estate: AHLU managed to secure INR 22bn of new orders in FY22, taking the OB to INR 76bn (Government ~80%). The company has already bid for INR 20bn of orders and identified INR 12bn of tenders for future bidding. Despite the uptick in residential real estate, AHLU remains wary of private developers and will wait for at least a year before taking projects. FY22 order inflow guidance is INR 25bn.

Balance sheet remains robust: Gross debt reduced to INR 156mn from INR 470mn at the end of FY20. With cash balance of ~INR 3bn, AHLU remains a net cash company. FY22 Capex is pegged at INR 250-300mn. In a bid to clean up the balance sheet, management provisioned INR 530mn in FY21 against expected credit losses. There is an increase in other current and non-current assets, largely due to increase in unbilled revenue and retention money.

Shares of AHLUWALIA CONTRACTS (INDIA) LTD. was last trading in BSE at Rs.400.1 as compared to the previous close of Rs. 396.85. The total number of shares traded during the day was 13829 in over 761 trades.

The stock hit an intraday high of Rs. 413.25 and intraday low of 386.3. The net turnover during the day was Rs. 5570710.

Source : Equity Bulls

Keywords