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Subdued margin performance continues…

About the stock: Ashoka Buildcon (ABL) is primarily engaged in the construction of roads and bridges having an integrated portfolio of EPC, BOT and HAM projects. Besides roads construction, ABL also has an established  presence across varied infra verticals such as power transmission, railways, city gas distribution.

* Diversified order book, decent execution capabilities, expected pick-up in execution, and focus on debt reduction and working capital are expected to outline ABL’s performance over the next few years

 Q1FY23 Results: ABL reported a mixed operational performance during Q1FY23

* Standalone revenue improved 46.2% YoY to | 1,479 crore aided by decent order book position, pick-up in execution and receipt of appointed date in most of its older projects

* EBITDA margin moderated to 9.8% (down 208 bps YoY) impacted by change in project mix and rise in commodity prices. Effectively, operating profit at | 144.6 crore, was up 20.6% YoY

* PAT growth was modest at 3% YoY (to | 104.3 crore) impacted by lower other income and higher finance cost

 What should investors do? ABL’s share price de-grew 40% over the past five years (from ~| 127 in August 2017 to ~| 76 in August 2022).

* We maintain our HOLD rating on the stock as a) lowering of revenue guidance, b) moderation in margins and c) bagging projects at lower margin at multiple geographies/sectors would remain key overhang, going forward

 Target Price and Valuation: We value ABL at | 80/share.

 Key triggers for future price performance:

* Incremental inflows key to ensure growth; 14.8% revenue CAGR on standalone level likely over FY22-24E with margins at ~10%

* Planned monetisation of HAM/annuity assets

 Alternate Stock Idea:Besides ABL, we like HG Infra Engineering in the EPC space.

* Strong execution and healthy order book

* BUY with a target price of | 765/share 

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