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Maintain Buy Rating on IVRCL Infrastructure & Projects - Karvy Stock Broking

Posted On : 2010-10-09 10:00:12( TIMEZONE : IST )

Order inflow momentum continued

COMPANY UPDATE
IVRCL Infra (Rs171)
Buy
Target Price: Rs238

IVRCL Infrastructure & Projects Ltd. (IVRCL) has recently announced the awarding of its long awaited L1 project, Sion-Panvel State Highway project (SPSHP) worth Rs 15bn (L1 in Q2FY10) and a four laning highway road project in Chandrapur, (Maharashtra) worth Rs 7.5bn. Both the projects would provide the construction opportunity of Rs 18bn for IVRCL and the development assets worth Rs 22.5bn for IVRCL Assets and Holding (IVRCLAH). We have already factored the revenue from SPSHP but the awarding of project has increased the assurance of our full year estimates for FY11 and FY12. This would add to value for IVRCLAH which we will factor once we will get more details on the project. We maintain our BUY rating on the stock with price target of Rs 238 based on SOTP valuation.

Project details and funding: IVRCL has won the prestigious BOT toll road project which is a strategic extension of Mumbai-Pune Expressway by another 25km. The total project cost is Rs 15bn and has toll rights for 17 years and 5 months. The project consists of 10 Lane main carriageways (6 lane access control) between BARC to Kalamboli, leading to Mumbai-Pune Expressway. The company has got another BOT project worth Rs 7.5bn with viability gap funding of Rs 2.3bn for four laning and improvement of Karanji-Ghuggus-Chandrapur road. The project has fixed 30 year concession period including construction period. Looking at the debt/equity ratio (0.8 in FY10) of the IVRCL and planned equity raising through QIP, monetization of land assets, securitization of receivables from operating projects by IVRCLAH; funding would not be constraint.

Strong order book coupled with expected pick up in execution: IVRCL has a strong and diversified order book of Rs 240bn (3.7x of order book to bill (BTB) ratio on FY11 revenue), comprising 42% from water and irrigation projects, 18% from buildings 34% from roads and 6% from power. BTB has increased from 2.8x in FY09 to 4.4x as on Sep'10 which has assured the growth opportunity as well as visibility of revenue. We expect the order backlog would grow at CAGR of 25% in next two years to Rs. 376bn by end of FY12. About 45% of new orders in FY10 have come from road sector which has shorter execution cycle. We believe this would provide the pick up in execution and subsequently strong revenue growth for FY11 and FY12.

Maintain our BUY rating: We value the company on a sum of the parts (SOTP) valuation. The core construction business is valued at a PER of 12x on FY12 earnings driven by assurance of growth and improved visibility of revenue. The subsidiaries (IVRCL Assets & Holdings Ltd. And Hindustan Dorr Oliver) have been valued at 30% holding discount to its market price. Based on the above; we value the company at Rs 238/share and maintain our BUY rating.