Hold IRCON International Paints Ltd for the Target Rs 114 by Prabhudas Liladhar Ltd
Execution picks up; Order inflow still the missing link
IRCON reported standalone revenue of INR 20.9bn (+13% YoY) in Q2FY27, its second straight growth quarter, led by faster execution on the Sivok-Rangpo rail project and the bullet train track (T2) package. EBITDA rose 61% YoY to INR 1.0bn, with margin at 4.9% vs 3.4% YoY. However, PAT fell 34% YoY to INR 1.22bn (41% below our estimate), dragged by a 45% fall in other income to INR 976mn and a one-off tax of INR 127mn on the completed Sri Lanka project (tax rate 32.7% vs 18.4% YoY). Order book stood at INR 213bn as on 1HFY27 (~2.4x TTM standalone revenue) vs INR 234bn in Q1FY27 and INR 250bn at FY26-end, implying inflows lagged execution during the quarter (implied H1 inflow of only ~INR 2bn); mix at ~76% railways, 91% domestic orders, 55% competitively bid. Management now guides FY27E standalone revenue at INR 90-95bn (vs “broadly stable” earlier) and targets order inflows of INR 90-100bn; only ~INR 10bn has been secured so far. We retain HOLD rating with revised TP of INR 114 (earlier INR 136) as we lower EPS for FY28E/29E by 5%/7% factoring lower execution and value EPC at lower multiple of 20x 1HFY29. Stock has corrected but we still await better price to be buyers in IRCON.
Execution beats, earnings quality weak:
Standalone revenue grew 12.9% YoY (+16.1% QoQ) to INR 20.9bn, 10.7% above our estimate, with domestic revenue up 12.1% YoY to INR 20.3bn and international revenue up 52.5% YoY to INR 569mn. Core EBITDA rose 60.8% YoY to INR 1.02bn (38% above our estimate), with margin up 145bps YoY to 4.9% (5.3% in Q1FY27), as project and material costs eased to 91.5% of revenue from 92.6% YoY. Reported EBITDA including other income fell 16.7% YoY to INR 1.99bn, with margin at 9.1% vs 11.8% YoY, as other income dropped 44.5% YoY to INR 976mn. Management attributed this to the end of ISTPL dividends, lower interest as surplus cash moves into PPP equity, and lower exchange gains. Depreciation rose 28% YoY to INR 156mn and finance cost rose to INR 24mn (INR 4mn YoY), leaving PBT down 20.0% YoY at INR 1.81bn (margin 8.3% vs 11.2%). A one-off tax of INR 127mn on the Sri Lanka project lifted the tax rate to 32.7%, and PAT fell 34.0% YoY to INR 1.22bn, with PAT margin at 5.6% vs 9.1% and EPS at INR 1.30 vs INR 1.96. Excluding the one-off tax, PAT would have declined ~27% YoY.
Order book shrinks; inflow target back-ended:
Order book at INR 213bn vs INR 234bn in Q1FY27 and INR 250bn at FY26-end, at ~2.4x TTM standalone revenue. Railways form ~76% (INR 162bn), highways 17% (INR 36bn) and others 7% (INR 15bn); domestic 91% (INR 193bn), international 9% (INR 20bn). Competitively bid projects form 55% (INR 117bn) vs nomination-based 45% (INR 96bn), unchanged from Q1. Inflows in Q2 were only ~INR 2bn; management said orders secured so far in FY27 total ~INR 10bn, most of it won after September. To reach its INR 90-100bn FY27 target, IRCON is relying on ~INR 250bn of bids awaiting opening and a push overseas (Algeria, Sri Lanka, Africa, Eastern Europe), where it aims to lift the international share to 15% from 9%. Two projects drive current execution: Sivok-Rangpo (INR 20-25bn pending) and bullet train T2 (INR 30-35bn pending), together about a quarter of the order book.
Legacy asset unwind:
The Ircon-Soma Tollway (ISTPL, 50% JV) toll rights ceased on 14 May 2026 and assets are being handed over to NHAI; IRCON’s share of net worth is INR 1.06bn (INR 1.08bn in Q1), with no impairment perceived, and the end of its dividends is one reason for lower other income. IRSDC (26% JV) liquidation continues, with IRCON’s share of net worth at INR 654mn after the INR 510mn interim payment received in July 2026. Two further exits were disclosed this quarter: the Ministry of Railways has approved in principle the closure of Bastar Railway (JV) with transfer of its assets and liabilities to the Ministry, and Phase I (Angul-Balram, 14 km, operational) and Phase II (Balram-Putgadia-Tentuloi, under construction) of the MCRL project will be handed over to the Ministry, with no impairment foreseen. Meanwhile, IRCON has invested ~INR 31bn in subsidiaries and JVs, with another INR 8-9bn to go; the coal connectivity JVs are loss-making and are expected to break even in about two years.
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