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Robust performance

Ahluwalia Contracts (ACIL) reported INR5.8bn top line in Q2FY22, up 132% YoY (due to low base) and down 24% QoQ (due to second wave). EBITDA margin at 10.4% jumped 300bps YoY/125bps QoQ. PAT surged 3.7x YoY and was down just 6% QoQ. Order book remains healthy at ~INR71bn (~3.1x TTM revenue); in addition, the company is L1 in INR11.6bn projects.

We are revising up FY22/23E earnings by 10%/4%, factoring in healthy execution and improvement in margin. At the same time, rich valuations (~14x FY23E earnings) leave little room for upside. Hence, we maintain ‘HOLD’ with a revised TP of INR421 (INR389 earlier) while rolling forward the valuation to Mar 23E.

Execution and margins improve

ACIL’s Q2FY22 revenue jumped 132% YoY due to low base. The second wave led to top line falling 24% QoQ and had ~10% impact on execution. EBITDA margin rose ~300bps YoY to 10.4%. Management believes margin will recover to 11–12% in FY22 and can touch the normal level of 13–14% over the medium term as provisioning for bad debts is largely over. Working capital cycle deteriorated QoQ to 72 days (from 40 in Q4FY21); management indicated that West Bengal and Bihar state governments are facing financial stress due to the pandemic, which has had an adverse impact on the payments cycle. Net cash declined QoQ to INR2bn from INR4bn in Q4FY21. Net debt to equity remains at a comfortable (0.2)x.

Order book remains robust

The company ended the quarter with an order book of ~INR71bn (book-to-bill of 3.1x); in addition, it is L1 in INR11.6bn worth of projects. ACIL has submitted bids for ~INR65bn projects (50–60% are hospitals, 20% commercial projects, and the balance institutional projects); it expects to win ~INR25bn in orders in the current fiscal. Management indicated that the hospital segment is witnessing good activity; it is, however, still wary of taking private residential orders. It indicated that competitive intensity remains high and hence its order inflow guidance is conservative.

Outlook and valuation: Limited upside; maintain ‘HOLD’

We are revising up FY22/23E EPS by 10%/4% in the wake of strong execution and improving margins. As rich valuations (~14x FY23E earnings) leave little room for upside, we maintain ‘HOLD/SN’ with a revised target price of INR421 while rolling forward the valuation to Mar-23E.

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