Buy IVRCL Infra - Motilal Oswal

IVRCL (IVRCL IN, Mkt Cap US$0.4b, CMP Rs66, Buy)

Revenues stood at Rs14b (20% YoY), Execution has picked up, resulting in best YoY growth in revenues in past eight quarters.EBIDTA at Rs1.4b (up 21% YoY), EBITDA margins stood at 9.9% (up 13bp YoY), Net profit stood at Rs423m (down 7.7% YoY), driven by higher interest cost of Rs592m in 3QFY11 vs Rs368m in 3QFY10 and Rs480m in 2QFY11. Management stated that increased cost is largely due to higher interest rates on short term paper which have moved up to 10-10.5% from 8-8.5% in the last three months.

Order book as at December 2010 stands at Rs242b, flat from Rs236b in 2QFY11. Order intake is Rs32b in 3QFY11, a decline of 10% YoY.Of the Rs242b order book, in-house BOT projects contribute Rs55b and Andhra Irrigation projects at Rs30b. Order-book is contributed by the following segments: water & irrigation (Rs118b), buildings (Rs26b), power (Rs14b), transport (Rs72b) and oil & gas (Rs9b).

In 3QFY11, management bought 100 % stake in Alkor Petro Ltd and IVRCL Building Products Ltd from its subsidiaries IVRCL Assets & Holdings Ltd at Rs200m.

We cut our earnings estimates for FY11 by 16% and FY12 by 26%, largely due to higher interest expenses. We now expect EPS of Rs7.1 in FY11 (down 10.4% YoY) and Rs7.9 in FY12 (up 11.2% YoY). We have cut revenues by 2% for FY11 and 7% for FY12. We upgrade the stock to Buy, with revised price target of Rs115 (earlier Rs162), an upside of 85%. Our target price is based on SOTP method, comprising of core business of Rs84/sh (6x FY12E EV/EBITDA) and IVRCL Assets (Rs22/sh of IVRCL) and HDO (Rs9/sh of IVRCL).

Source : Equity Bulls

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