IGI Logo

Order wins crucial going ahead

Ashoka Buildcon’s (ASBL) Q3FY21 standalone EPC revenue was flat on YoY basis and up 12% QoQ to Rs9.8bn. While ASBL’s order book of Rs92bn (2.2x FY20 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 Rs20-30bn of new order wins in Q4FY21 and Rs50-60bn in FY22E on the back of improved ordering outlook for road projects. We maintain our BUY rating with a revised target price of Rs182/share (earlier Rs131) on SoTP basis as we roll forward to Mar-23 earnings and increase EPC earnings multiple to 10x from 8x earlier. Our target price includes Rs112 for the standalone EPC business, 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 flat YoY, to ramp up going ahead: ASBL’s Q3FY21 standalone EPC revenue was flat on YoY basis and up 12% QoQ to Rs9.8bn. EBITDA margins declined 188bps YoY to 10.8%. The management highlighted that labour availability has now normalised and the company expects flattish YoY EPC revenue in FY21E. EBITDA margin guidance over the next two-three years has been revised downwards to 11-12% from 12-13% earlier 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 Rs3.5bn (R2.2bn in Q2FY21) which consists of Rs1.7bn of equipment loans and Rs1.8bn of working capital loans with cash balance of Rs0.7bn (standalone net D/E of 0.1x). Execution is expected to ramp up from Q4FY21 with the Kandi project commencing execution along with two NHAI EPC projects in Bihar. The TS-III project is expected to receive AD in Q4FY21.

* Healthy order book, looking to diversify order book profile: ASBL did not win any major orders during the quarter barring two power T&D projects worth Rs3.2bn and the company’s order book at the end of Q3FY21 stood at Rs91.5bn (2.2x FY20 EPC revenue). The company is targeting fresh order wins of Rs20-30bn in Q4FY21E and Rs50-60bn 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.

* 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 April 2021 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.

To Read Complete Report & Disclaimer Click Here