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Order wins crucial going ahead

Ashoka Buildcon’s (ASBL) Q4FY21 standalone EPC revenue was up 20% YoY and 41% QoQ to Rs13.8bn driven by improved execution across roads segment. While ASBL’s order book of Rs81bn (1.8x FY21 EPC revenue) remains healthy, incremental order wins and monetisation of BOT road assets in Ashoka Concession Ltd. (ACL) remain key triggers for the stock. ASBL is targeting fresh order wins of Rs40-50bn in FY22E on the back of improved ordering outlook for road projects. We maintain our BUY rating with an unchanged SoTP based target price of Rs182/share. Our target price includes Rs112 for the standalone EPC business valued at 10x Mar’23 EPS, Rs65 for BOT/HAM projects and Rs5 for land at 0.5x P/B multiple. Key risks to our call are slowdown in NHAI road orders and delay in execution of ongoing projects.

EPC revenues improve, to ramp up going ahead:

ASBL’s Q4FY21 standalone EPC revenue was up 20% YoY and 41% QoQ owing to improved execution in road projects. The management highlighted that labour availability has now normalised to 90-95% of pre-Covid levels and the company expects a 20-25% EPC revenue growth in FY22E after achieving flattish YoY EPC revenue of Rs38.2bn in FY21. EBITDA margin guidance over the next two-three years remains at 11-12% owing to higher competitive intensity in bidding for road orders and company’s diversifications plans into lower margin EPC segments. Standalone debt levels remain comfortable at Rs3.6bn (up marginally QoQ) which consists of Rs1.6bn of equipment loans and Rs2.0bn of working capital loans with cash balance of Rs1.0bn (standalone net D/E of 0.1x). ASBL has pending HAM equity commitments of Rs3.2bn over FY22-23E as of Mar’21.

Healthy order book, looking to diversify order book profile:

ASBL’s order book at the end of Q4FY21 stood at Rs81.3bn (1.82x FY21 EPC revenue) along with additional L1 orders of Rs19.5bn. The company is targeting fresh order wins of Rs40-50bn in FY22E on the back of enhanced market opportunity for NHAI/MoRTH road orders over this period. While roads currently constitute 76% of the order book, ASBL is targeting orders in the water and buildings segment as well in order to reduce its dependence on road projects going ahead. We model for standalone EPC revenue of Rs45bn in FY22E and Rs53bn in FY23E and we believe that this is achievable considering that company is looking to diversify its order book across segments.

ACL asset monetisation remains a key trigger: .

As per ASBL management, the asset monetisation plans for BOT/HAM projects in ACL/ASBL are at an advanced stage and the company expects to receive a binding agreement by Q2FY22 once due diligence is complete. While ASBL is looking to divest up to 100% stake in these projects (including under-construction), any positive outcome on the same is a key trigger for the stock going ahead.

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