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Dropping coverage…

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.

Q2FY23 Results: ABL reported a weak operational performance during Q2FY23.

* 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 48% over the past five years (from ~| 140 in November 2017 to ~| 73 in November 2022).

* We believe moderation in margins and bagging projects at lower margin at multiple geographies/sectors would remain key overhang, going forward

* We drop our coverage on the stock and advise investor to switch to PSP Projects, which has had a relatively consistent track record in cash flow generation, margins and return ratio

Key triggers for future price performance:

* Stability in margins and execution consistency

* Planned monetisation of HAM/Annuity assets

Alternate Stock Idea: Besides ABL, we like PSP Projects in the EPC space.

* Strong execution and healthy balance sheet

* BUY with a target price of | 720/share

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