Recommendations » India

IVRCL 2QFY2013 performance highlights and results update

Contributed by Angel Broking

For 2QFY2013, IVRCL reported a disappointing set of numbers on the operating front, which were significantly below our and consensus estimates. The company’s order book stands at ~Rs.25,000cr (4.9x trailing revenues). IVRCL is in an advanced stage of negotiation for sale of three road BOT projects. As per the Management, these asset sales are intended towards meeting the equity requirement for the road BOT projects and reducing debt levels.

Execution improves, offset by abysmal EBITDAM: The company reported a revenue of Rs.1,270cr in 2QFY2013, registering a growth of 5.6% yoy which was ahead of our estimate by 19.9%. At the operating level, the company posted an abysmal EBITDA margin of 5.4%, a decline of 250bp/172bp on yoy/qoq basis and was significantly below our estimates of 8.5%. This was mainly on back of various one-time provisions such as (a) service tax write off, (b) claims on receivables from clients and (c) cost overruns in 4-5 projects aggregating to ~Rs.72cr provided during the quarter. On the earnings front, IVRCL reported a loss of Rs.68cr (our estimate was a loss of Rs.13cr) against a profit of Rs.7cr in 3QFY2012.

Outlook and valuation: IVRCL has a strong order book of ~Rs.25,000cr (4.93x trailing revenue), which provides comfortable revenue visibility. However the proportion of slow moving orders remains high in the current order book. Given the slower-than-expected execution and weak performance in 1HFY2013, we lower the EPS estimates for FY2013 and FY20104 to Rs.(3.9) and Rs.2.9 respectively. The stock is trading at FY2014E P/E (excluding subsidiaries) and P/BV of 3.1x and 0.4x respectively. We recommend Buy rating on the stock with a target price of Rs.35.