BUY on Ashoka Buildcon - Execution surprise - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities.

We maintain BUY on Ashoka Buildcon (ASBL) with a target price of Rs 141/sh. Earnings beat is driven by better-than-expected execution, controlled expenses, and one-offs. Labour availability has improved to ~90% (from 50-65% QoQ) with sites working at ~85% pre-COVID efficiency (vs. ~50% QoQ). After suspension during the first phase of lockdown, tolling reached 85% of pre-COVID level within three weeks of resumption and continues to be at ~90% level across projects. Low net D/E of 0.02x and comfortable liquidity insulate ABL from COVID-19 headwinds. No change in FY21/22 estimates.

Better execution, controlled expenses, and one-offs led to earnings beat: Revenue stood Rs at 5.7bn (-35/-50% YoY/QoQ, 52% beat vs estimate of Rs 3.7bn). EBITDA reported at Rs 0.82bn (-25/-37% YoY/Q0Q, +4% QoQ, vs estimate of Rs 107mn). EBITDA impacted positively by ~2% owing to release of contingency reserves by three SPVs nearing project completion. Further, other income included one-offs: (1) Rs 50mn from an insurance claim, (2) Rs 50mn from Rs 650mn equipment loan restructuring. ABSL was also able to curtail fixed and admin expenses. Consequently, APAT came in at Rs 691mn (+6.8%/-22.6% YoY/QoQ, vs estimate of Rs -164mn). EBITDA margin guidance is at a historical level of 12-13%. Revenue break-up between roads/railways/power T&D - Rs 4.7/0.37/0.35 bn.

Order book at Rs 86bn dominated by road segment: While road segment represents 80% of the order book, 9% and 10% is constituted by Power T&D and Railways respectively. The company expects to win Rs 40-50bn (Rs 30-40bn roads, Rs 10-20bn railways) of projects once tendering activity picks up pace. Financial closure of TS-III, TS-IV and Kandi (still at ~60% 3H land) project expected by September end, in line with earlier guidance. These projects could start contributing to ASBL topline from as early as Oct-20.

Liquidity position comfortable: Consolidated gross/net debt stood at Rs 56/51bn, while standalone gross/net debt stood at Rs 2.4/0.6bn (0.025x net D/E). While ABL has not availed loan moratorium at standalone level, at SPV level, interest moratorium has been availed, with principal repayments as per schedule. HAM equity and Capex requirements remain modest at Rs 2.25bn (Rs 0.56bn in FYTD21, Rs 1.6bn in FY22) and Rs ~0.7bn respectively for remaining FY21. The company believes that ACL has sufficient cash and will not require loss funding from parent entity for BOT projects. With the resumption of tolling operation and a moratorium on principal, the company has sufficient liquidity to service interest payments of BOT assets. Although ACL asset monetisation process is on hold for now, we expect meaningful progress by FY21E end. Receivables, mainly in Railways and Power T&D, are at a similar level of Rs 6.5bn (including retention money).

Shares of ASHOKA BUILDCON LTD. was last trading in BSE at Rs.70.9 as compared to the previous close of Rs. 64.6. The total number of shares traded during the day was 1163389 in over 10183 trades.

The stock hit an intraday high of Rs. 74 and intraday low of 65.7. The net turnover during the day was Rs. 81268351.

Source : Equity Bulls

Keywords