Buy Ahluwalia Contracts (India) Ltd For Target Rs.466 - Yes Securities
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Weak performance
Our view
Ahluwalia Contracts (AHLU) reported weak revenue/EBITDA/APAT of 6.2/0.6/0.4bn, missing at all levels. AHLU expects topline to grow by 10?15% YoY in FY23E, with EBITDA margin (incl. other income) in the range of 12%? 13%. Margins are expected to improve from 2HFY23E with softening of commodity prices, pickup in execution of new projects. During 1H, the company has bagged projects worth Rs32bn taking OB to Rs76bn thereby giving revenue visibility of next 2?3years. Further with strong tender pipeline of Rs50bn already bided / planning to bid, management expects additional orders worth Rs10?15bn in 2HFY23E. Going forward management plans to increase the share in private sector from 18% in 2Q.
We remain positive on AHLU from a long?term perspective given its 1) sound business strategy, 2) prudent selection of orders (state and central), 3) focus on asset light business model, 4) better working capital management. On the back of a) strong order inflow, b) healthy order book and c) RM prices stabilizing we expect revenues/PAT CAGR of 14%/25% over FY22?25E. We have introduced FY25 estimates with Revenue/PAT growth of 12%/17% YoY. We have revised our rating from ‘NEUTRAL’ to “ADD” with a TP of Rs466 valuing the stock at 12x FY24E EPS.
Result Highlights
* For Q2FY23, AHLU’s revenues de?grew by 10.8% YoY to Rs6.2bn (below our and street estimate of Rs6.9bn / Rs7.4bn), as execution witnessed slowdown.
* EBITDA reported at ~Rs619mn with EBITDAM witnessing an expansion of 89bps YoY to 9.9% (below YSec estimate of 11.5%). Margins were impacted on account of higher employee expenses
* Adj PAT grew 9.4% YoY to Rs392mn (below our estimate of Rs424mn), due to decline lower operating margin.
* In 2Q, the company has won orders worth Rs21.5bn
* At the CMP, the stock trades at a P/E of 12.8x and 10.5x its FY23E & FY24E earnings.
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