IVRCL - Asset sales pickup may ease execution pressures - Avendus

IVRCL's Jun12 results imply improved execution, which may sustain as execution of BOT projects pickup. Its borrowings remained unchanged after the merger. Road BOT orders of cINR72bn in FY12 have raised the pending equity commitment to INR18bn. The sale of stake in a BOT asset has gone through and four more are on the anvil; this may bring in incremental cash of cINR4.5bn. Further asset monetization, including that of the land bank, will be critical to meet the large equity requirement and sustain the execution pickup. We cut the FY14f EPS by 43% on higher borrowings. We rollover our TP to Sep13 and cut it to INR38, maintaining our target P/E and EV/EBITDA at 5x. Maintain Hold.

June quarter numbers incorporate financials of merged business

Revenues increased 7% y-o-y, improving upon the decline in the previous three-quarters. IVRC's Jun12 quarter numbers are not comparable, as they include the 15-month (Apr11-Jun12) financials of the erstwhile IVRCL Assets and Holdings (IVR), which is now merged into it. It reported a loss of INR60mn in the Jun12 quarter, even after booking an INR1.17bn profit on the sale of stake in the Sion-Panvel BOT project.

Cut FY14f EPS by 43%; debt levels unchanged after merger

Borrowings have remained largely unchanged q-o-q at INR25bn and include INR0.9bn in external debt of the erstwhile IVR. After the merger, loans and advances to subsidiaries reduced by INR0.5bn from INR1bn. Five BOT projects worth cINR72bn won in FY12 have raised the pending equity commitment across projects to INR18bn. IVRC has sold stake in a BOT asset and is in talks to sell stake in four other (including two operational projects); realizing cash of cINR4.5bn. The FY14f EPS is cut by 43%, mainly on higher debt. We introduce FY15f, implying an 11% y-o-y increase in revenue and 38% in PAT.

Hold with Sep13 TP of INR38; asset monetization critical to cap debt

We have assumed a cash inflow of INR9bn over three years from asset monetization (including its c2,300 acre land bank) to meet pending equity commitments. We rollover our TP to Sep13. Based on the average of the fair values derived using a target P/E of 5.0x and EV/EBITDA of 5.0x, we arrive at our TP of INR38 (INR58 earlier). The merged IVR business is valued based on its last one-year's average market cap, while the EPC business is valued, excluding debt worth INR0.9bn, which was added on account of the merger. The lower listed subsidiary value and cut in earnings led to a reduction in the TP. We maintain a Hold rating. High interest rates, lower execution and lower inflow from asset sales are the key risks.

Source : Equity Bulls

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