Buy Ashoka Buildcon - PINC Event Update

Ashoka Buildcon Ltd (ABL) share price has witnessed a sharp downfall in last two trading sessions; the price has corrected 24% from a high of Rs245 to Rs186 and finally closed at Rs197. The fall aggravated post the formal announcement on BSE at 1.44pm today about their latest road project win Cuttack-Angul worth Rs11.2bn (NHAI cost) spanning 112km section on NH42. This project details were already known as on 22nd Nov 2011 and initial review suggests that the bid seems fair and not aggressive. We believe this selling opportunity provides a good entry price for the stock and we maintain our positive stance with a BUY rating and a target price of Rs321.

Not an aggressive bid…

ABL was termed L1 for the Cuttack-Angul section NH42, Phase IV of 112km as on 22nd Nov (please find our Quick Bite report dated 23rd Nov alongside). ABL has quoted a premium of Rs610.9mn, which is only ~Rs100mn higher than L2 and L3 at Rs512.1mn NCC and Rs510.3mn L&T (refer exhibit 1). The L2 and L3 quote being from two significant strong and experienced players in the road segment provides more weightage to our thesis.

Initial assessment for Cuttack-Angul is strong…

The Cuttack-Angul section is believed to be a strong connecting line between the industrial and coal rich section in the central Odisha belt to the important southern city of Cuttack, which then extends to the most important port of Odisha i.e. Paradip port. As Cuttack-Angul section is near to Mahanadi Coalfield, it houses many industrial plants like JSPL has 3mt steel plant, Bhushan steet has 1.9mt steel plant and 410MW captive power plant, Nav Bharat Ventures has 0.2mt ferro alloy plant (refer exhibit 2). To the north of Angul we have NH6, which is the Kolkata-Mumbai highway, thus based on the initial round of enquiry the project does not seems a bad fit to ABL's portfolio. ABL has an existing project to the north of Angul, which is Sambalpur-Baragarh four laning project of 88km with TPC of Rs10bn, which may provide some mobilisation and logistical benefit.

VALUATIONS AND RECOMMENDATION

Post this stock price correction, ABL valuation has reduced to below 1x book value to 0.9x FY12E. The market cap has reduced to Rs10.4bn and EV stands at Rs20.7bn, available at P/E of 8x and 4.3x EV/EBITDA, which we believe is attractive. Equity invested till date by ABL is ~Rs5bn, which would increase to Rs7bn & Rs10bn by FY12E and FY13E. We value the company on a SOTP basis at Rs321 per share, we value BOT (DCF) at equity multiple of 1.6x times and 1.1x times on FY12E and FY13E i.e. Rs10.5bn. Over FY11-13E, we expect revenue for standalone business to clock 26.5% CAGR and PAT to increase at 11% CAGR. We value this business at 8x FY13E adjusted earnings of Rs15.3 (EPC). Our target price is Rs321 with a BUY rating.

Source : Equity Bulls

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