Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities.
Ahluwalia Contracts (Q4FY20 Results Review): Looking ahead. Maintain BUY
(TP Rs 265, CMP Rs 210, MCap Rs 14bn)
We maintain BUY on AHLU with unchanged TP of Rs 265 (10x FY22E EPS) despite 20% 3QFY20 miss on APAT. We downgrade our FY21E EPS by 68% to factor in higher than earlier envisaged COVID impact on execution, esp. in urban centres like MMR/NCR. We retain FY22E estimate. Ahluwalia is well placed to counter near term COVID related execution challenges owing to robust order book and strong BS. Execution efficiency now stands at ~25% and will normalise only by 4QFY20 ramping up gradually (May-15%, June-25%, July-35-40%, Aug-50%. We continue to remain patient as execution has started across all projects and will pick up full steam only by Sep-20, with overhang of stuck projects & write-offs now largely behind. While Parivahan / Gardanibagh / Mohammadpur projects are in preparatory stage with all approvals now in place and work having started, Rs 5.5bn Charbagh Station redevelopment has been foreclosed due to environment hurdle. Rs ~1.5bn Delhi Govt order has also been cancelled. The Robust balance sheet, net cash status and better than peers RoE/RoCE are other comforting factors, even as EBIDTA margins have trended downwards on one offs.
Weak execution and one-offs resulted in cracking of EBIDTA margin: AHLU 4QFY20 revenue was lower due to COVID-19 lockdown in 2nd half of Mar-20 & lingering effects of NGT construction ban in NCR during 3QFY20, apart from slow moving Mohammadpur project. Distribution of fixed costs over lower revenue base resulted in dismally low EBIDTA margins of 4.2%. Adj for Rs 260mn write off on exposure to stressed RE players under NCLT adj. EBIDTA comes to Rs 0.49bn (-14/-19% YoY/QoQ, 15% miss) with margin at ~8.9% which is still at 3 year low. AHLU expects EBIDTA loss during 1HFY20, with ramp up 3QFY21 onwards. Debtors write-off towards stressed RE developers under NCLT of Rs 420mn was made in FY20, with incremental provisioning/write-off to be minimal during FY21E.
Orders book robust, execution pickup awaited: order book remains robust at Rs ~75bn + Rs 5bn L1. AHLU has won new orders worth Rs 32.3bn (net of cancellation of Rs 7bn) during FY20 and is expected to go slow on bidding, focusing rather on execution. Kota project reported rev of Rs 13/62mn for 4QFY20/FY20. Improvement in quality of clientele lends additional comfort.
Strong balance sheet, net cash status: AHLU's gross debt remains negligible with Gross Debt at Rs 520mn & Cash (incl. FDR) of Rs 1.65bn. With capex intensity continuing to remain low at Rs ~0.4bn annually, we expect AHLU to remain a net cash company over FY21-22E.
Key risks include (1) Slowdown in government capex; (2) High cost inflation; (3) Extended lockdowns across States; (4) Lower than expected leasing in Kota BOT project.
Shares of AHLUWALIA CONTRACTS (INDIA) LTD. was last trading in BSE at Rs.208.1 as compared to the previous close of Rs. 212.15. The total number of shares traded during the day was 2353 in over 163 trades.
The stock hit an intraday high of Rs. 213.25 and intraday low of 204. The net turnover during the day was Rs. 494079.