Published on 10/08/2020 10:51:16 AM | Source: HDFC Securities Ltd

Update On Ircon International Ltd By HDFC Securities

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Our Take:

The company is a Miniratna (Category - I) Public Sector Enterprise and a leading turnkey Construction Company in the public sector. IRCON is the only Indian PSU to be ranked in the list of Top 250 international contractors of Engineering News Record (ENR) magazine of USA published in the year 2019. Domestically, the company has completed around 3025 odd projects in India and internationally, it has executed around 110 projects in more than 24 countries till now. Due to the current COVID situation execution may see a significant drop during the H1FY20, but, the management expects to bring about similar growth story as of FY20, from the second quarter of FY21E onwards. Railway projects form up the main part of the company’s activities, which is one of the main focus areas of the government to augment economic activities. Various ongoing projects, aided by gradual return of labour is going to be helpful, as the economy reopens in phases.


Valuations & Recommendation:

We expect IRCON’s revenue/EBIT/PAT to increase at a CAGR of 4.8/5.9%/5.8% over FY20-22E. We expect the company’s ongoing projects (both domestically and internationally), improvement in the situation of labour, healthy order book, and sound financials to aid the company during these trying times. We expect the first half of FY21 to take a hit due to slow execution, but, the same is expected to take a turn for the better from Q2FY21E onwards. The company is largely insulated from the effects of pandemic due to its committed orders and thrust by Govt to incur Capex by PSUs. IRCON had aggressively brought down its debt in FY20, whereby its debt equity ratio came down from 0.78:1 in FY19 to 0.44:1 in FY20. Its order book of Rs 30712.7cr is equivalent to almost 6 years sales and hence provides enough revenue visibility. At a price of Rs.95.4, it provides dividend yield of ~5% assuming FY20 dividend of Rs.4.8 is maintained going forward.


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