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Execution inline; order book visibility augurs well for revenue

Labor availability and execution scaling back to pre-COVID levels

* Ashoka Buildcon (ASBL)’s 4QFY21 revenue increased ~11% YoY, in line with our estimate. EBITDA stood 15% above our estimate, led by a higher EBITDA margin (150bp above our expectation) on account of the reversal of ECL provisions in some power projects. As a result of lower depreciation, coupled with higher other income, adjusted PAT declined 9% YoY and was 36% above our estimate.

* The order book declined 3% YoY to INR81.7b in FY21, with the order book/revenue ratio at 2.2x. However, including L1 orders of INR19b, OB stands at ~INR100b, with OB/rev at ~2.8x, which provides comfort.

* The strong execution seen over the past two years is commendable. However, the pending P/E exit in the asset portfolio is an overhang on the stock. A strong order book, coupled with a healthy ordering outlook and continuous improvement in the balance sheet, augurs well for ASBL. We largely maintain our estimates and Buy rating with TP of INR145/share.

Robust order book

* 4QFY21 snapshot: Revenue grew 11% YoY to INR13.9b, in line with our estimate. EBITDA declined 12% YoY to INR2b, 15% ahead of our expectation. The EBITDA margin stood at 14.5% v/s our estimate of 13%. Adjusted PAT was down 9% YoY to INR1.5b, 36% ahead of our expectation of INR1.1b.

* FY21 snapshot: Revenue stood flat YoY at INR38.2b. EBITDA declined 11% YoY to INR5.2b, with the EBITDA margin at 13.6% (down 130bp YoY) due to an adverse revenue mix. PBT was flat YoY at INR5.5b, weighed by higher other income. Adjusted PAT was up 6% YoY to INR4.1b. Net debt stood at INR4.3b (v/s INR3.5b in FY20), with net D/E comfortable at 0.1x.

Highlights from management commentary

* Labor efficiency fell to ~70% in May’21. However, it has scaled back to 90– 95% across projects. Labor availability issues do not pose a risk now.

* With the current order book, the management expects 20–25% growth in the Construction segment in FY22. The EBITDA margin is expected to stand at 12–12.5%.

* The NHAI’s awarding momentum is expected to resume from 2QFY22 – it plans to award INR2.25t worth of projects in FY22. As of now, ~INR700b worth of bids have been opened by the NHAI, and these are expected to be awarded over the next two quarters.

* On asset monetization, the management stated due diligence is ongoing for certain assets, with the Share Purchase Agreement expected to be over by end-1QFY22. ASBL aims to complete the monetization by 2Q/3QFY22.

* The FY21 revenue split was as follows: Roads (76%), Power (8%), Railways (10%), CGD (1%), and others (5%).

* ASBL targets INR60–70b worth of order inflows in FY22 (60–70% of which would come from the Roads sector).

Valuation and view

* ASBL’s strong execution over the past two years has been a surprise. However, the pending exit of the private equity investor in the asset portfolio is an overhang on the stock.

* A strong order book and continuous improvement in the balance sheet augur well for ASBL. Our unchanged TP of INR145/share is based on the SoTP methodology. We value the a) EPC business at 6x Mar’23E EPS and b) BOT business on an NPV basis. At CMP, adjusted for the valuation of the BOT business, the stock is trading at FY22E/FY23E P/E of 5.0x/4.4x. Maintain Buy.

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