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Strong Growth Visibility!

About the stock: Ahluwalia Contracts (India) Limited is a leading construction company with five decades of expertise.

* The company largely carries out EPC construction spanning residential/commercial complex, hotels, hospitals, institutional/corporate offices, IT parks, Railway station redevelopment, metro station/depot, parking lot etc.

* The order book stood at | 8162.7 crore as of FY23 (2.9x book to bill). Ahluwalia enjoys a healthy balance sheet and is a net cash company (net cash of | 585 crore in FY23).

Key Investment Thesis:

* Strong Order book to drive robust execution ahead: Ahluwalia has a strong order book of | 8162.7 crore as of FY23 end (2.9x book to bill) which was at an all-time high. Furthermore, the company also received orders worth | 4178 crore in Q1FY24. Thereby, taking the order book to ~| 12000+ crore, provides strong growth visibility for the next 3 years. The company has a bid pipeline of | 4000-5000 crore and is targeting further orders worth | 2000+ crore in FY24. We highlight that the company has guided for 20%+ revenues growth in FY24. Given the robust orderbook, we expect strong revenue CAGR of ~23% over FY23-25E to | 4296 crore

* Operating leverage led Margins improvement to boost PAT further: Going ahead, the company has guided for 11%+ margins in FY24 vs 10.7% in FY23 led by operating leverage led benefits and benign raw material regime. With strong execution, stabilised raw material prices, price escalation in ~72% of the order book, we expect margins to improve to 11% and 11.5% in FY24 and FY25, respectively vs. 10.7% in FY23. Strong topline growth coupled with margins expansion is likely to drive 31% earnings CAGR over FY23-25E

Rating and Target Price

* Ahluwalia is a key beneficiary of the tailwinds in the segments such as real estate, hotels, hospitals, station redevelopment as well as corporate/industrial capex. Given the strong expertise of 5 decades, order book visibility, history of robust execution and balance sheet strength, Ahluwalia is poised for a strong growth ahead.

* We initiate coverage with a BUY rating

* We value Ahluwalia at | 800 per share (based on 16x FY25 P/E)

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