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Improving order book brings cheer

Ashoka Buildcon (ABL) posted 5% YoY top-line growth in Q2FY22 (down 9% QoQ). EBITDA margin decreased 340bps YoY, which dragged PAT 9% YoY. Recovery in toll revenue continued (up 8% YoY). The company won orders worth ~INR33bn during the quarter, taking its order book to ~INR119bn (2.8x book-to-bill). This has addressed a key investor concern, in our view. And ABL renegotiated its agreement with SBI-Macquarie (SBI-M), capping the assured return to SBI-M at ~INR12bn till Dec-21 (from INR15.3bn earlier).

Incremental order-wins and BOT/HAM asset monetisation are the key stock triggers. Maintain ‘BUY’ with a revised SoTP-based TP of IN145 (INR140 earlier) as we roll forward the valuation to Mar-23E.

Execution muted; BOT traffic continues to recover

ABL’s Q2FY22 revenue rose 5% YoY, but declined 9% QoQ. The road segment contributed about 82% to revenue, railways ~10% and the balance came from CGD and power T&D. EBITDA margin fell 340bps YoY/350bps QoQ to 11.5%, which led to PAT declining 9% YoY (down 6% QoQ). The BOT portfolio’s toll rose 8% YoY to INR2.4bn (up 17% QoQ). Management expects to conclude the BOT/HAM asset monetisation soon. The delay in this has been an overhang on the stock, and the deal’s conclusion can be a significant re-rating trigger in our view. ABL has invested INR9.4bn equity in HAM projects; pending equity commitment stands at ~INR5bn.

Order book improves; more order-wins needed

The company ended Q2FY22 with an order book of INR119bn (INR95bn at endQ1FY22); the book-to-bill ratio stands at 2.8x. ABL has won ~INR56bn orders YTD and is targeting INR20–30bn worth of incremental orders by end-FY22. The company has added the building vertical to its repertoire and is targeting residential, hospital and warehousing projects in this segment. It intends to bid for both road EPC and HAM projects going ahead. Winning new orders is imperative for ramping up revenue growth, in our view.

Outlook and valuation: Asset monetisation key; maintain ‘BUY’

We are enthused by ABL’s improving order intake, and believe that asset monetisation and simplification of corporate structure will drive the stock price ahead. Retain ‘BUY/SN’ with a TP of INR145: INR97/share from EPC business and the balance from BOT projects (DCF valuation).

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