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Asset monetisation key ahead…

Ashoka Buildcon (ABL) reported decent standalone revenue growth of 10.5% at | 1387 crore on a benign base (~4% decline in Q4FY20). Reported EBITDA margins at 14.5% were higher owing to year end reversal of provision and ECS as projects came to an end as well as Price Index Multiple (PIM) being passed on to the EPC arm on achieving milestone. On a normalised project level, the company indicated that margin was in the range of 12-12.5%. PAT at | 149.2 crore was down ~9% YoY as the base quarter has higher margins due to reversals.

Order book becomes healthy after recent inflows

ABL’s order book (OB) at the end of Q4FY21 was at | 8,167 crore (OB-to-bill ratio of 2.1x TTM revenues) spread across roads - HAM (| 3,471 crore), roads - EPC (| 2,712 crore), power T&D and others (| 1,376 crore), railways (| 537 crore), and CGD (| 71 crore) segments. Furthermore, in Q1FY22, the company secured projects from a) Gujarat Rail Infrastructure Development Corporation worth | 283 crore, b) housing EPC project in Maldives worth | 1018 crore and c) road EPC project worth | 648 crore. Thus, the order book as on date, was at | 10,117 crore, 2.7x book to bill. Going forward, the management has guided for order inflow of | 4,000-5,000 crore in the rest of FY22, with 60-70% order inflows likely from roads. On the execution front, ABL indicated that execution efficiency went down to 70% in April, May due to labour migration amid second wave and is back to 90-95% in June. It maintained its guidance of 20%+ growth in FY22 albeit we believe it will be function of financial closure (FC) of HAM projects and execution traction on new orders. Post a 3% YoY decline in EPC revenues, we bake in ~13.5% CAGR in EPC revenues in FY21-23E to | 4914 crore. Furthermore, operating margin guidance was at moderated level of 12-12.5%, which is what we have baked in.

Equity infusion and asset monetisation update

ABL has infused ~| 775 crore (including Price Index Multiple) up to FY21 in the HAM project. It is further expected to infuse ~| 176 crore in FY22E and | 141 crore in FY23, based on the current order book position. In addition, ABL expects closure of the asset monetisation deal by Q2FY22, as discussions are in an advanced stage. We will monitor the fructification and valuation thereof, for the deal, which will be the key for leverage ahead.

Valuation & Outlook

Key factor of persistent delay in SBI-Macquarie stake sale remains a cause of concern for us. We believe asset monetisation will be key for a rerating of EPC business multiples. We conservatively bake in construction revenue CAGR of~13.5% in FY21-23E) to | 4,914 crore and moderation in EBITDA margins as guided. We maintain HOLD rating on the stock with an SoTPbased unchanged target price of | 110/share.

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