Buy Ahluwalia Contracts (India) Ltd - PINC Initiating Coverage

We initiate coverage on Ahluwalia Contracts (ACIL) with a 'BUY' rating and TP of Rs266. The company operates in business comprising civil construction activity. They generate excellent return ratios and are capturing sizeable orders in infrastructure.

- A consistent performer with best-in-class return parameters such as RoE of 38%, RoCE of 46%, a light balance sheet with WC to sales at 4.2%, low leverage at 0.5x, and well capitalised gross block at Rs2.3bn in FY10.
- EBIDTA margins robust at 11.5% in FY11E and 11.7% in FY12E
- Expected to generate FCF of Rs804mn in FY11 and Rs584mn in FY12.
- Management is keen to grow in the infrastructure space, especially in urban infra and BoP, which already constitute 19% of order book from 7% in FY08.

VALUATIONS & RECOMMENDATION

We initiate coverage on ACIL with a 'BUY' rating and value the company based on PE methodology. Considering its quality of returns, healthy balance sheet and strong working capital management, we assign a P/E of 13x, in line with its average valuation since listing. This is because we believe that ACIL has the requisite abilities to scale up and attain a substantial portion of the premium valuation it commanded during FY07-09, thus arriving at a target price of Rs266.

Source : Equity Bulls

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