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Strong guidance

Our view

Ahluwalia Contracts (AHLU) reported revenue of Rs6.1bn (our estimate Rs7bn) while EBITDAM came at 9.9% (below our estimates at 11.5%) on account of input cost pressure. Margin is expected to improve from 2HFY23 with softening of commodity prices and better project execution. During 1QFY23, the company has bagged projects worth Rs28.6bn taking its order book to Rs82bn (3x TTM revenue) thereby providing revenue visibility for next 3 years. Further with strong tender pipeline of Rs50bn already bided / planning to bid, management expects healthy order inflow of Rs40bn in FY23E. Going forward management plans to increase the share in private sector from 19% in 1Q. For FY23E, management has given strong revenue guidance in the range of 15-20% with EBITDAM of 12%.

We remain positive on AHLU from a long-term perspective given its 1) sound business strategy, 2) prudent selection of orders (state and central), 3) focus on asset light business model, 4) better working capital management. On the back of a) strong order inflow, b) healthy order book, c) RM prices stabilizing, and d) strong guidance given from the management we expect revenues/PAT CAGR of 15%/29% over FY22-24E. However due to the recent run-up in the stock price we have revised our rating to ‘NEUTRAL’ with a TP of Rs466 valuing the stock at 12x FY24E EPS.

Result Highlights

* For Q1FY23, AHLU’s revenues grew by 5% YoY to Rs6.1bn (below our and street estimate of Rs7.0bn / Rs7.1bn), as execution witnessed slowdown.

* EBITDA reported at ~Rs606mn with EBITDAM witnessing an contraction of 47bps YoY to 9.9% (below YSec estimate of 11.5%). Margins were impacted on account of higher RM cost & subcontracting expenses

* Adj PAT grew 8.6% YoY to Rs378mn (below our and street estimate of Rs489mn/ Rs431mn), due to decline lower operating margin

* At the CMP, the stock trades at a P/E of 14.3x and 11.6x its FY23E & FY24E earnings.

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