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Robust Performance on Execution Ramp-Up
Ahluwalia Contracts (AHLU) has reported a strong performance in 2QFY19 mainly led by rampup in execution in recently bagged projects. While revenue grew by a strong 31% YoY to Rs4.4bn (+9% QoQ) vs. our estimate of Rs3.8bn, EBITDA rose by 15% YoY to Rs574mn (+9% QoQ) and EBITDA margin stood at 13.1% vs. 14.9% and 13% in 2QFY18 and 1QFY19, respectively. Net profit grew by 21% YoY and 11% QoQ to Rs312mn vs. our estimate of Rs256mn. AHLU received order inflow of Rs31bn in FY19 YTD taking its total order backlog to Rs53bn (3.2x of FY18 revenue). Upgrading order inflow guidance to Rs40bn from Rs24bn, the Management has maintained revenue growth guidance of 15-20% with EBITDA margin of >13% for FY19 and >30% revenue growth in FY20E. We continue to maintain our positive stance on AHLU on the back of healthy balance sheet, asset light business model and superior return ratios. Upgrading our earnings estimates by 1%/17% for FY19E/FY20E mainly to factor in higher order inflow, we reiterate our BUY recommendation on the stock with an upwardly revised Target Price of Rs475 (from Rs450 earlier).
Execution Pick-up Drives Revenue Growth
Execution pick-up especially in new secured orders aided AHLU to a report healthy performance, as its reported revenue increased by a strong 31% YoY (+9% QoQ) to Rs4.4bn. Further, its reported EBITDA grew by 15% YoY to Rs574mn along with EBITDA margin of 13.1%, higher than our estimates. While the Management maintained its revenue growth guidance of 15-20% for FY19E, it hinted a revenue growth of >30% in FY20E mainly led by strong addition of order book.
Surge in Order Inflow Aided Order Backlog
Having seen dismal order inflow of Rs13bn in FY18, AHLU witnessed a sizeable order inflow of Rs31bn (excluding Rs1.25bn L1) in FY19 YTD, thus exceeding its inflow guidance of Rs24bn for FY19E. However, as ACIL is currently bidding for projects worth Rs30bn now, it has enhanced its inflow guidance to Rs40bn. Current order backlog, which stands at Rs53bn (3.2x of FY18 revenue), provides a decent revenue visibility. Notably, 78% of total order book is government projects, while 22% are private contracts including 11% in private residential projects. AHLU has not witnessed any payment issues from any private real estate clients as of now.
Outlook & Valuation
We maintain our positive stance on AHLU mainly on the back of: (1) asset light business model; (2) strong balance-sheet (D/E ratio at 0.05x); (3) best-in-class return ratios; and (4) no equity commitment unlike several other construction companies. While we cut our target PE multiple from 18x to 16x mainly owing to concerns over residential projects led by liquidity crunch. However, we reiterate our BUY recommendation on the stock with a revised Target Price of Rs475 (16x FY20 EPS).
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