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Execution in line; margin below our estimates

Robust order book to drive execution further

Ashoka Buildcon (ASBL)’s revenue grew 13% YoY (20% QoQ) to INR11b in 3QFY22 and was 4% below our estimate. EBITDA margin contracted 60bp QoQ to 10.9% (below our estimate of 11.8%). EBITDA grew 14% YoY to INR1.2b (est. INR1.4b), while PAT dropped 11% to INR0.76b (est. INR1b)

OB stood at ~INR123b (excluding recently won projects of INR22b), with an OB/revenue ratio of ~2.4x, providing comfort on revenue growth. The management’s major focus would be on Roads/Railways (at 65% share of the order book) in future. The Building, Power T&D, and other segments accounted for the rest 35% share.

A strong order book, coupled with a healthy ordering outlook and continuous improvement in the balance sheet, augurs well for ASBL. The stock trades at 6x FY24E EPS for the core construction business. We cut our EPS estimates marginally to factor in lower margin estimates for FY23/24 than expected earlier. We retain our BUY rating with a revised SoTP-based TP of INR150, implying 67% upside potential.

Robust order book

The order book stood at ~INR123b. Roads HAM/EPC projects contributed INR26b/INR50b to the order book, while Buildings EPC and Power T&D contributed INR19b each. Railways contributed INR7b.

The total order book inflow stood at INR85b for FY22 YTD

Order intake target for 4QFY22 was at ~INR15b.

Highlights from the management commentary

Expect revenue growth of 25-30% for FY23 and FY24 looking at the current order book and Government’s focus on infrastructure. Revenue guidance for FY22 stands at 15-20%.

Equity infusion requirements for the balance HAM projects (other than Kim HAM project) are likely at INR1.45b in FY22 and INR1.39b in FY23.

Gross toll collection for BOT division was at INR2.6b in 3QFY22, flattish YoY.

The management is likely to make payment of INR12b to SBI Macquarie. An additional provisioning is done due to an exit provided to SBI Macquarie and hence INR7.7b has been taken as an exceptional item, which is higher than INR5.5b as communicated earlier

Valuation and view

ASBL has delivered strong execution over the last couple of years, with decent profitability. After the exit provided to SBI Macquarie, ASBL is now looking to accelerate the sale of its other assets, which includes Jaora Nayagaon and the Chennai ORR project, to free up further capital

A robust order book and improvement in the Balance Sheet bode well for ASBL. The stock trades at 6x FY24E EPS for the core construction business. We retain our BUY rating with a revised SoTP-based TP of INR150, implying 67% upside potential.

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